Assume that at the end of 20X1, a company's ending inventory balance is overstated by $3,000. If the company has a 20% average tax rate, how will its income statement and balance sheet be affected in 20X1?

Assume that at the end of 20X1, a company's ending inventory balance is overstated by $3,000. If the company has a 20% average tax rate, how will its income statement and balance sheet be affected in 20X1?



20X1:

- BI: n/e
- NP: n/e
- EI: overstated by $3K
- COGS: understated by 3K
- GP: overstated by $3K
- Income Tax Exp.: overstated by $600 ($3K x 0.2)
- NI: overstated by $2.4K ($3K - 600)
- Cash: n/e
- Inventory: overstated by $3K
- Income Tax Payable: overstated by $600
- RE: overstated by $2.4K


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