Use the Following Information for Questions
Dexter, Inc -Assume That the Proper Correcting Entries Were Made at December

question 59

Multiple Choice

Use the following information for questions
Dexter, Inc.is a calendar-year corporation.Its financial statements for the years 2007 and 2006 contained errors as follows: $$\begin{array} { l l l } &{ 2007 } & { 2006 }\\\text { Ending inventory } &{ \$ 3,000 \text { overstated } } & { \$ 8,000 \text { overstated } } \\\text { Depreciation expense } & \$ 2,000 \text { understated } & \$ 6,000 \text { overstated }\end{array}$$
-Assume that the proper correcting entries were made at December 31, 2006.By how much will 2007 income before taxes be overstated or understated?

• A)$1,000 understated
• B)$1,000 overstated
• C)$2,000 overstated
• D)$5,000 overstated

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Definitions:

Cash Dividend

A distribution of a company's profits to its shareholders in the form of cash.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations with its current assets.

Convertible Bonds

Bonds that can be converted into a predetermined number of the issuing company's shares at certain times during its life, usually at the discretion of the bondholder.

Common Stock Options

Financial derivatives that give the holder the right, but not the obligation, to buy or sell shares of a company's common stock at a set price before the option expires.