Steven, Inc. uses the perpetual inventory system. The company's management, under pressure to report favorable results to shareholders, included $15,000 of inventory that had already been sold in its ending inventory. Indicate whether this misstatement would overstate (O), understate (U), or not affect (NA) each of the elements of the financial statements. You do not need to enter amounts. AssetsLiabilitiesStk. EquityRevenuesExpensesNet IncomeStmt of Cash Flows???????
What will be an ideal response?
(O) (NA) (O) (NA) (U) (O) (NA)
Counting inventory that does not belong to the company overstates assets (inventory) and stockholders' equity (retained earnings). It understates expenses (cost of goods sold), which overstates net income. It does not affect the statement of cash flows.
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