The Level of Real Income of a Firm Can Be

question 65

Multiple Choice

The level of real income of a firm can be distorted by the reporting of depreciation and interest expense. During periods of high inflation, the level of reported depreciation tends to __________ income, and the level of interest expense reported tends to __________ income.

• A) understate; overstate
• B) understate; understate
• C) overstate; understate
• D) overstate; overstate
• E) There is no discernible pattern.

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Definitions:

Inventory

Items or goods held by a company for the purpose of sale or production, including raw materials, work-in-progress, and finished goods.