Last Year's Ending Inventory Was Understated

question 94

Multiple Choice

Last year's ending inventory was understated.This error would cause:

• A)this period's net income to be overstated.
• B)this period's net income to be understated.
• C)this period's end assets to be overstated.
• D)None of these is correct.

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Definitions:

Tax Deductible

Expenses that can be subtracted from gross income to reduce the amount of income subject to tax, thereby lowering the tax liability.

Income Tax Rate

The percentage at which an individual or corporation is taxed on their income, which can vary based on the amount of income and the jurisdiction.

Deferred Tax Liability

A tax obligation recognized on a company's financial statements resulting from temporary differences between the tax basis of assets or liabilities and their reported amounts in the financial accounts.

Pre-Tax Book Income

The income an entity has earned before taxes are deducted, as reported in its financial statements, ignoring tax impacts.