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Financial Accounting

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Moderate

Inventory Errors Net Income

FINACT-YNGMBL

The beginning merchandising inventory balance for Jazz Company is presented on the balance sheet as \$173,500 on 1/1/2016, but this is overstated by \$3,500 because merchandise held on consignment from Brown Company is incorrectly included in the balance. On 12/31/16, the ending inventory amount is reported as \$180,000, but it is overstated by \$5,000 for the same reason.

By how much is net income understated or overstated at the end of the period?

A

Net income is understated by \$1,500.

B

Net income is overstated by \$1,500.

C

Net income is understated by \$8,500.

D

Net income is overstated by \$8,500.