Question description
An abbreviated income statement for Earthlink Company for this fiscal year is as follows:Net Sales$145,000Cost of Goods Sold:Merchandise Inventory, January 1$122,000Purchases (net)30,000Cost of Goods Available for Sale152,000Less Merchandise Inventory, December 3128,000Cost of Goods Sold124,000Gross Profit$21,000Operating Expenses11,000Net Income$10,000An accountant discovers that the ending inventory is overstated by $4,250. What effect does this have on cost of goods sold, gross profit, and net income in this fiscal year?Cost of goods soldSelectoverstatedunderstatedItem 1$ Gross profitSelectoverstatedunderstatedItem 3$ Net incomeSelectoverstatedunderstatedItem 5$
