Penny Company Made an Inventory Count on December 31, 2015

question 123

Short Answer

Penny Company made an inventory count on December 31, 2015. During the count, one of the clerks made the error of counting an inventory item twice. For the balance sheet at December 31, 2015, the effects of this error are $\begin{array} { ccc} & \underline{\text { Assets }} &&&& \underline { \text { Liabilities } } & \underline{\text { Stockholder's Equity }} \\\end{array}$
A) $\begin{array} { ccc} & \text { overstated } & \text { understated } & \text { overstated } \\\end{array}$
B) $\begin{array} { ccc} &\text { understated } & \text { no effect } && \text { understated } \\\end{array}$
C) $\begin{array} { ccc} & \text { overstated } & \text { no effect } &&& \text { overstated } \\\end{array}$
D) $\begin{array} { ccc} & \text { overstated } & \text { overstated }& & \text { understated }\end{array}$

• A) \(\begin{array} { ccc} & \text { overstated } & \text { understated } & \text { overstated } \\\end{array}\)
• B)\(\begin{array} { ccc} &\text { understated } & \text { no effect } && \text { understated } \\\end{array}\)
• C)\(\begin{array} { ccc} & \text { overstated } & \text { no effect } &&& \text { overstated } \\\end{array}\)
• D)\(\begin{array} { ccc} & \text { overstated } & \text { overstated }& & \text { understated }
• \end{array}\)

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Definitions:

Standard Deviation

A measure of the dispersion or variation in a set of numerical data, indicating how spread out the values are from the mean.

Expected Return

The average of all possible returns for an investment, weighted by their likelihood of occurrence.

Insured Savings Account

A savings account that is protected by insurance, usually provided by a government agency, against the loss of deposits.

Portfolio

A collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents, including closed-end funds and exchange traded funds (ETFs).