At the End of 2014, a $5,000 Understatement Was Discovered

question 74

Multiple Choice

At the end of 2014, a $5,000 understatement was discovered in the amount of the 2014 ending inventory as reflected in the inventory records. What were the 2014 effects of the $5,000 inventory error (before correction) ?

• A) Assets were understated by $5,000 and pretax income was understated by $5,000.
• B) Assets were understated by $5,000 and pretax income was overstated by $5,000.
• C)Cost of goods sold was understated by $5,000 and pretax income was understated by $5,000.
• D)Cost of goods sold was overstated by $5,000 and pretax income was overstated by $5,000.

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Definitions:

Ex-Dividend

A status indicating that a stock is trading without the right to receive the most recently declared dividend.

Declared Dividends

Dividends announced by a company's board of directors that are to be paid out to shareholders.

High-Dividend-Payout

Strategy by which a firm distributes a significant portion of its profits in the form of dividends to its shareholders.

Cash Payments

Transactions in which the exchange of goods or services is made with immediate transfer of cash from buyer to seller.