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A company uses a periodic inventory system and has its cost of ending inventory understated by $4,000. Which of the following describes the effects of this error on the company’s current-year’s cost of goods sold and net income, respectively?
A
Cost of goods sold: Overstated, Net income: Overstated
B
Cost of goods sold: Understated, Net income: Understated
C
Cost of goods sold: Understated, Net income: Overstated
D
Cost of goods sold: Overstated, Net income: Understated