A $15,000 Overstatement of the 2011 Ending Inventory Was Discovered

question 52

Multiple Choice

A $15,000 overstatement of the 2011 ending inventory was discovered after the financial statements for 2011 were prepared. How would that inventory error impact the 2011 financial statements?

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

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Definitions:

Volume-Based Allocation

A method of distributing resources, costs, or revenues proportionally based on the volume of goods produced or services rendered.

Product Costing

The process of determining the total cost involved in producing a product, including raw material, labor, and overhead costs.

Cost Control

Cost control involves the practice of identifying and reducing business expenses to increase profits, maintaining quality and efficiency in the process.

Overhead Costs

General business expenses not directly tied to producing a product or service, such as rent, utilities, and insurance.