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 20X2?
20X2:
- BI: n/e
- NP: n/e
- EI: n/e
- COGS: overstated by 3K
- GP: understated by $3K
- Income Tax Exp.: understated by $600 ($3K x 0.2)
- NI: understated by $2.4K ($3K - 600)
- Cash: understated by $600
- Inventory: n/e
- Income Tax Payable: understated by $600
- RE: n/e
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