Some inventory errors are said to be $$self$-$correcting$$ in that the error has the opposite financial statement effect in the period following the error, thereby $$correcting$,$ the original account balance errors. Despite this self$-$correcting feature, these errors should not be ignored. An example would be an overstatement of ending inventory at the end of $2023.$

Required:

What is an impact of an overstatement of ending inventory at the end of $2023?$

multiple choice $1$

A$.$ The errors cause the financial statements of the year of the error as well as the financial statements in the subsequent year to be incorrect.

B$.$ The error will correct itself in $2024$ in that beginning inventory will be understated, but retained earnings at the end of $2024$ will be incorrect.

C$.$ Cost of goods sold and net income will be incorrect in both $2023$ and $2024.$

D$.$ Inventory and retained earnings on the $2023$ balance sheet will be incorrect.

If a material inventory error is discovered in an accounting period subsequent to the period in which the error is made, which of the following is not among the steps required to account for the error correction.

multiple choice $2$

A$.$ Previous years$$ financial statements that were incorrect as a result of the error are retrospectively restated to reflect the correction.

B$.$ Any account balances that are incorrect as a result of the error are corrected by journal entry.

C$.$ If retained earnings is incorrect, the correction is reported as a prior period adjustment to the ending balance of retained earnings, net of tax, in the statement of shareholders$$ equity.

D$.$ A disclosure note is needed to describe the nature of the error and the impact of its correction on affected line items, net income, and earnings per share.