Ricardo Clothing Uses a Periodic Inventory System and Committed an Error

Multiple Choice

Ricardo Clothing uses a periodic inventory system and committed an error that overstated inventory at the end of Year One. Assuming no further errors occur during the following year, at the end of Year Two:

A) profit is understated; equity is overstated.
B) profit is understated; equity is correct.
C) profit is overstated; equity is correct.
D) profit is overstated; equity is overstated.