If a company has an overstated ending inventory, what is the effect on cost of goods sold and net income?

• A. Cost of goods sold is understated, leading to an overstated net income.
• B. Cost of goods sold is overstated, leading to an understated net income.
• C. Both cost of goods sold and net income are overstated.
• D. Cost of goods sold is unaffected, but net income is understated.

Answer: (A)