A Firm Has a Current Ratio Greater Than 1 $\begin{array} { l l l } & { \quad\quad\underline{\text { Net income} } } &\quad\quad \underline{\text { Current ratio} } \\\end{array}$

question 36

Multiple Choice

A firm has a current ratio greater than 1.0. If the firm's ending inventory is understated by $3,000 and beginning inventory is overstated by $5,000, the firm's net income and current ratio will be: $\begin{array} { l l l } & { \quad\quad\underline{\text { Net income} } } &\quad\quad \underline{\text { Current ratio} } \\\end{array}$
A. $\begin{array} { l l l } & \text { understated by } \$ 2,000 & \text { too low } \\\end{array}$
B. $\begin{array} { l l l } & \text { overstated by } \$ 2,000 &\quad \text { too low } \\\end{array}$
C. $\begin{array} { l l l } & \text { understated by } \$ 8,000 & \text { too low } \\\end{array}$
D. $\begin{array} { l l l } & \text { understated by } \$ 8,000 & \text { too high }\end{array}$

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Definitions:

Revenue

The total amount of money received by a company for goods sold or services provided during a certain period of time.

Formula

A mathematical equation or rule expressed in symbols, often used in scientific, mathematical, or financial calculations.

Variable Overhead Efficiency Variance

The difference between actual variable overhead and the standard cost, reflecting efficiency in using resources that vary with production volume.

July

The seventh month of the year in the Gregorian calendar, often associated with the peak of summer in the Northern Hemisphere.