Correcting Overstated Closing Inventory Increases Loss and Reduces Accumulated Fund

Steps:

• Original deficit of $700 reflects understated loss due to overstated closing inventory.
• Overstating closing inventory by $50 understates COGS by$50, understating the loss by $50.
• Adjust by increasing COGS $50, raising deficit to$700 + $50 =$750.
• Accumulated fund decreases by additional $50 loss:$4600 - $50 =$4550.

Why C is correct:

• Per matching principle, closing inventory overvaluation reduces COGS, overstating profit (or understating loss); correction increases loss and reduces equity.

Why the others are wrong:

• A: Incorrectly decreases deficit to $650 (wrong direction) and fund to$4500 (double error).
• B: Decreases deficit to $650 (ignores loss increase) but correctly adjusts fund.
• D: Correctly increases deficit but fails to adjust fund for additional loss.

Final answer: C