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Financial Accounting

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Moderate

Inventory Errors Purchases Net Income

FINACT-4MVILK

Brown Company's ending inventory is presented as \$104,000 on the balance sheet at the end of the year, but the balance incorrectly includes inventory held on consignment from another company and should be presented as \$100,000. In addition, the company made a purchase of \$23,000 during the year that is incorrectly recorded as \$32,000.

Is net income under or overstated, and by how much at the end of the year?

A

Net income is overstated by \$9,000.

B

Net income is understated by \$9,000.

C

Net income is overstated by \$5,000.

D

Net income is understated by \$5,000.