Many Non-Accountants Are Confused When They Hear That Company Has

question 77

Essay

Many non-accountants are confused when they hear that company has a tax refund of $2,000, but reported an income tax expense of $5,000. These individuals believe such a situation results from companies keeping two sets of books. They further believe that keeping two sets of books is illegal and should be prohibited.
Required:
1. Do companies keep two sets of books and, if they do, is this illegal?
2. How can a company have a tax refund when it also reports an income tax expense?

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Definitions:

Marginal Product

The additional output generated by using one more unit of a particular input, holding other inputs constant.

Inventory

The goods and materials a business holds for the ultimate goal of resale, production, or utilization.

Labor Hours

The total amount of time workers spend working in a given period, typically measured in hours per day, week, or year.

Isoquant

An isoquant is a curve that represents all the combinations of inputs that produce the same level of output in production theory.