A $25,000 Overstatement of the 2014 Ending Inventory Was Discovered

question 115

Multiple Choice

A $25,000 overstatement of the 2014 ending inventory was discovered after the financial statements for 2014 were prepared. Which of the following describes the effect of the inventory error on the 2014 financial statements?

• A) Current assets were overstated and net income was understated.
• B) Current assets were understated and net income was understated.
• C)Current assets were overstated and net income was overstated.
• D)Current assets were understated and net income was overstateD.An overstatement of ending inventory overstates current assets and understates cost of goods sold and therefore overstates net income.

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Definitions:

Coordination of Secondary Schemes

A developmental stage in infants around 8-12 months where they begin to combine learned behaviors in new ways.

Tertiary Circular

Relates to a stage in Piaget’s theory of cognitive development involving the purposeful adaptation of established behaviors in new contexts, observed in toddlers.

Mental Combinations

The cognitive process of putting together distinct ideas or concepts to form new knowledge or understanding.

Qualitative Changes

Transformations in developmental stages that indicate a fundamental change in an individual's capabilities or behavior.