Inventory at the end of the current year is overstated by $20,000. What effect will this error have on the following year's net income?
a. Net income will be overstated by $20,000
b. Net income will be understated by $20,000
c. Net income will be correctly stated
d. Net income will be understated $40,000
Answer : b. Net income will be understated $20,000.
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