CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

Consider the following conditions of ending inventory and the stated results:

Ending Cost of Inventory | Goods Sold | Net Income
A. Overstated | Overstated | Overstated
B. Overstated | Understated | Understated
C. Understated | Overstated | Understated

Which condition is true with regard to the ending inventory?
A. Condition A
B. Condition B
C. Condition C
Explanation: When ending inventory is understated, inventory costs assigned to the cost of goods sold will be overstated and consequently net income will be understated.

User Contributed Comments 6

User Comment
jml115 I don't think this question is very clear
melmilesxx its confusing, but if you break it up it makes sense. Ending Cost of Inventory | Goods Sold | Net Income. Now match them up with the effect.
janecb1 this is how i worked it out: COGS = BI + Purchases - EI; Net Income = Sales - COGS - Other Expenses. EI and COGS & GOGS and Net Income have inverse relationships.
apiccion I got this question right, but I found it very confusing. Had to think for a long time to figure out what it was asking.
Gleeder Glad you got it right! :)
ciji ending inventory / cost of goods sold/ net income.............thats the question
You need to log in first to add your comment.