1. If ending inventory is understated, the effect is to:

Overstate the net purchase

Overstate the gross margin

Overstate the cost of goods available for sale

Overstate the cost of goods sold

2. If beginning inventory is overstated, the effect is to

Overstate net purchases

Overstate gross margin

Overstate cost of goods available for sale

Understate cost of goods sold

3. The overstatement of ending inventory in the current year will cause:

Retained earnings to be understated in the current year-end statement of financial position.

Cost of goods sold to be understated in the income statements of next year.

Cost of goods sold to be overstated in the income statement of the current year.

Statement of financial position not to be misstated in the next year-end.

4. At the middle of the year, an entity paid for insurance premium for the current year and debited the amount top prepaid insurance. At yearend, the bookkeeper forgot to record the amount expired. In the financial statements prepared at year-end, the omission:

Overstates owners' equity

Understates assets

Understates net income

Overstates liabilities

5. When the current year's ending inventory is overstated:

The current year's cost of goods sold is overstated.

The current year's total assets are understated.

The current year's net income is overstated.

The next year's net income is overstated

6. An overstatement of ending inventory in the current period would result in income of the next period being:

Overstated

Understated

Correctly stated

The answer cannot be determined from the information

7. Which of the following would result if the current year's ending inventory is understated in the cost of goods sold calculation?

Cost of goods sold would be overstated

Total assets would be overstated

Net income would be overstated

Retained earnings would be overstated