A $15,000 Overstatement of the 20B Ending Inventory Was Discovered

question 85

Multiple Choice

A $15,000 overstatement of the 20B ending inventory was discovered after the financial statements for 20B were prepared. What was the effect of the inventory error on the 20B financial statements?

• A) Current assets were overstated and profit was overstated.
• B) Current assets were understated and profit was overstated.
• C) Current assets were understated and profit was understated.
• D) Current assets were overstated and profit was understated.

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Definitions:

Year-End

The completion of an accounting period, typically a 12-month cycle, at which time a company prepares financial statements and closes its books.

Unearned Revenue

Unearned revenue refers to money received by a company for goods or services yet to be delivered or performed, hence recognized as a liability until the service is completed.

Financial Statements

Reports that summarize the financial activities and condition of a business or individual.

Liability

A financial obligation or amount owed by a company to creditors, employees, tax authorities, or other entities.