If Ending Inventory on December 31, 2007, Is Overstated, Then

question 43

Multiple Choice

If ending inventory on December 31, 2007, is overstated, then:

• A)cost of goods sold for the year ended December 31, 2008, will be understated.
• B)gross profit for the year ended December 31, 2008, will be understated.
• C)cost of goods sold for the year ended December 31, 2007, will be overstated.
• D)gross profit for the year ended December 31, 2007, will be understated.

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Definitions:

Bailment

The legal relationship established when possession, but not ownership, of personal property is transferred from one person to another under an agreement.

Bailee Compensation

The payment made to a bailee for the service of temporarily holding or storing the bailor's property.

Gratuitous Bailment

A legal relationship where one party, the bailor, temporarily transfers possession of an item to another, the bailee, without expectation of payment or benefit.

Bailee's Lien

The right of a bailee to retain possession of a bailor's property as security for unpaid charges related to the property.