A Company Uses the Periodic Inventory Method and the Beginning $\begin{array} { cc } &\underline { \text { Assets } } &\underline{ \text { Stockholders' Equity } }\\\end{array}$

question 24

Short Answer

A company uses the periodic inventory method and the beginning inventory is overstated by $7,000 because the ending inventory in the previous period was overstated by $7,000. The amounts reflected in the current end of the period balance sheet are $\begin{array} { cc } &\underline { \text { Assets } } &\underline{ \text { Stockholders' Equity } }\\\end{array}$
A) $\begin{array} { cc } \text { Overstated } & \text { Overstated } \\\end{array}$
B) $\begin{array} { cc } \text {Correct } &&& \text { Correct } \\\end{array}$
C) $\begin{array} { cc } \text { Understated } & \text { Understated } \\\end{array}$
D) $\begin{array} { cc } \text { Overstated } && \text { Correct }\end{array}$

• A)\(\begin{array} { cc } \text { Overstated } & \text { Overstated } \\\end{array}\)
• B)\(\begin{array} { cc } \text {Correct } &&& \text { Correct } \\\end{array}\)
• C)\(\begin{array} { cc } \text { Understated } & \text { Understated } \\\end{array}\)
• D)\(\begin{array} { cc } \text { Overstated } && \text { Correct }
• \end{array}\)

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Definitions:

Externalities

Financial repercussions impacting parties who are not directly involved, which may manifest as either beneficial or detrimental outcomes.

Sole Proprietorship

A business owned and operated by one person, where there is no legal distinction between the owner and the business entity.

High-Coupon Bonds

Bonds that offer interest rates significantly above the market average to attract investors despite potential risks.

Low-Coupon Bonds

Bonds that offer a lower interest rate compared to other bonds on the market.