Ignoring income tax, indicate the effect of this error (overstated, understated, or no effect) on each of the following at year end:

In its physical inventory count at its February 28, 2017,

In its physical inventory count at its February 28, 2017, year end, the Orange Sprocket Corporation included inventory that was being held for another company to sell on consignment. As a result, the company’s inventory count showed the company having more inventory than its accounting records indicated it should have. The company adjusted its inventory and cost of goods sold accordingly. The merchandise was sold in the next year and inventory was correctly stated at February 28, 2018.

Instructions

Ignoring income tax, indicate the effect of this error (overstated, understated, or no effect) on each of the following at year end: