An Analysis of a Company's Inventory Indicates That Inventory at the End

An analysis of a company's inventory indicates that inventory at the end of 2016 was understated by $30,000 due to an inventory count error.Inventory at the end of 2017 was correctly stated.The company uses the periodic system of inventory and its fiscal year-end is December 31.Given this information,which of the following statements is correct?

A) The net income of 2016 is overstated and a retrospective correction should be made.
B) The net income of 2017 is overstated and should be corrected.
C) The 2017 year-end retained earnings are overstated and a prospective correction should be made.
D) The net income of 2017 is understated and should be corrected.

Correct Answer:

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