Cake Mart understated its ending inventory in the current year by $5,000. The company incorrectly reported net income of $100,000. Determine the effect of the error on the financial statements.

C. Cost of goods sold will be too high by $5,000, and this caused net income to be understated by $5,000

Explanation:

In this scenario, the final stock is understated by $5,000 which indicates that the cost of the products sold is overestimated by $5,000 which affects the net profit by understating the $5,000 amount

As if the portion of the stock is impacted, it influences the cost of the products sold that eventually impacted the net profit. And the correct net sales will be $95,000 ($100,000-$ 5,000)