Due to an error in processing invoices, some product costs were treated as period costs. Which of the following indicates how this error effects the financial statements, assuming production exceeded sales during the period?
A) Stockholders' equity is overstated.
B) Ending inventory is understated.
C) Net income is overstated.
D) Gross margin is overstated.
You would need to explain more than what the quiz feedback gave, which is “If product costs were treated as period costs, then the inventory is understated.”
Maybe you can explain why one or more of the other answer choices is NOT the correct answer.