When Ending Inventory Is Understated

question 73

Multiple Choice

When ending inventory is understated:

• A) cost of goods sold is overstated and profit is understated.
• B) beginning inventory is overstated and profit is understated.
• C) cost of goods sold is understated and profit is understated.
• D) cost of goods sold is overstated and profit is overstated.

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Definitions:

Excess Burden

The cost to society created by market inefficiency, which occurs when supply and demand are out of equilibrium, often due to taxation or other government intervention.

Revenue Derived

Income generated from normal business operations or other specific sources.

Tax Rate

The per-unit amount of the tax or the percentage rate at which the economic activity is taxed.

Tax Burden

The aggregate sum of taxes that individuals or businesses remit, correlated to their earnings or profits.