Read the scenario below and answer the following question.

Kai at Kai Automotive purchases much of his stock from overseas. Some of these shipments take six months or more to get to him. Because of this long lead time, his vendors require a 75% deposit at the time of order. Its a significant dollar amount. Up until now, hes been entering a bill for all the inventory items and paying 75% of the bill. He has hired you to review and fix his books, if necessary, and advise him on correct procedures to use going forward.

Upon review, what are the 2 findings as of the date of the deposit?

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Inventory is overstated

COGS is overstated

Accounts Payable is overstated

Accounts Payable clearly reflects the prepayment