The beginnings inventory of the current year is overstated by 5,000 and closing inventory is overstated by 12,000. These errors will cause the net income for the current year by
A12,000 (understated.
B7,000 (understated.
C17,000 (overstated.
D7,000 (overstated.
Correct answer
D. 7,000 (overstated.
Explanation
C. Overstatement of closing stock results in overstatement of profit and overstatement of opening stock results in understatement of profit. In the instant case, there will be overstatement of profit by 12,000 – 5,000 = 7,000.