As of December 31, 2007, Ames Corporation incorrectly counted its physical inventory as $275,000 instead of $300,000. The effect on the income statement is: A. Cost of merchandise sold is understated...

As of December 31, 2007, Ames Corporation incorrectly counted its physical inventory as $275,000 instead of $300,000. The effect on the income statement is: A. Cost of merchandise sold is understated by $25,000 B. Gross profit is overstated by $25,000 C. Operating income is understated by $25,000 D. Inventory shrinkage is understated by $25,000