Respuesta :
Answer:
2020 net income overstatement $5,000
2021 net income understatement $5,000
Explanation:
The lower of cost and net realizable method of valuing inventory is used in valuing closing inventory where cost is invoice and NRV is the estimated selling price less cost to sell
Product Cost selling price cost to sell NR unit value
X $37 $48 $15 $33 $33
The inventory should have been valued at $33 not at $38
This means that inventory in 2020 was overstated by $5,000 ($38-$33)*1000)), costs of good sold in year 2020 was understated by $5,000 hence net income was overstated by $5,000
The spillover effect in year 2021 is the reverse of 2020,hence understatement of net income by $5,000
