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The December 31, 2010, Ending Inventory Failed to Include $10

question 60

Multiple Choice

The December 31, 2010, ending inventory failed to include $10, 000 of inventory that was received on December 27, 2010.The purchase on account was, however, properly recorded on the date of delivery.What effect will this error have on the December 31, 2010, assets, liabilities, and net income for the year then ended? $\begin{array}{llll} & \text { Assets}& \text { Liabilities}& \text { Net Income}\\\text { I. } & \text { overstated } & \text { overstated } & \text { no effect } \\\text { II. } & \text { understated } & \text { understated } & \text { no effect } \\\text { III. } & \text { understated } & \text { no effect } & \text { understated } \\\text { IV } & \text { understated } & \text { inderstated } & \text { inderstate }\end{array}$

Definitions:

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life, reflecting wear and tear, obsolescence, or other declines in value.

Depreciable Rate

The rate at which an asset loses its value over time for accounting and tax purposes, determining its annual depreciation.

MACRS Rates

MACRS Rates refer to the depreciation rates established under the Modified Accelerated Cost Recovery System, allowing for faster depreciation of assets for tax purposes.

Property

Assets owned by an individual or business, which can include physical items like real estate and equipment, or intangible items like intellectual property.