Othello Company Understated Its Inventory by $20,000 at December 31

question 143

Multiple Choice

Othello Company understated its inventory by $20,000 at December 31, 2014. It did not correct the error in 2014 or 2015. As a result, Othello's stockholder's equity was:

• A)understated at December 31, 2014, and overstated at December 31, 2015.
• B)understated at December 31, 2014, and properly stated at December 31, 2015.
• C)overstated at December 31, 2014, and overstated at December 31, 2015.
• D)understated at December 31, 2014, and understated at December 31, 2015.

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Definitions:

Bad Debts

Accounts receivable that a company does not expect to collect and writes off as a loss.

Credit Policy

The guidelines a company follows to determine the creditworthiness of its customers and the terms and conditions of credit it will extend to them.

Bad Debts

Amounts owed to a company that are written off as uncollectible, typically from customers who fail to pay their invoices.

Credit Policy Relaxation

The act of making a company's criteria for extending credit more lenient, aiming to boost sales at the risk of higher bad debts.