If a Company Understates Its Inventory, What Are the Effects

Multiple Choice

If a company understates its inventory, what are the effects on cost of goods sold and net income for the current year?

A) Cost of goods sold will be understated and net income will be overstated.
B) Cost of goods sold will be overstated and net income will be understated.
C) Both cost of goods sold and net income will be understated.
D) Both cost of goods sold and net income will be overstated.