A company uses the periodic inventory method and the beginning inventory is overstated by $7,000 because the ending inventory in the previous period was overstated by $7,000. The amounts reflected in the current end of the period balance sheet are:

A) Overstated Overstated

B) Correct Correct

C) Understated Understated

D) Overstated Correct

B) Correct Correct

Explanation:

The correct correct option chosen reflects or agrees with the fact that the beginning inventory is overstated by $7,000 becasuse the ending inventory of the previousperiod was overstated by $7,000.

Based on the periodic inventory system, the inventory at the end of every accounting period is determined through the process of physically counting the inventory at the end of that period.

As such once, the inventory determined for a previous period is overstated, ti automatically becomes the opening or beginning inventory for a new period. Overstated Ending becomes overstated beginning inventory.

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