If a Company Fails to Make an Adjusting Entry to Record

question 184

Multiple Choice

If a company fails to make an adjusting entry to record supplies expense, then

• A) stockholders' equity will be understated.
• B) expense will be understated.
• C) assets will be understated.
• D) net income will be understated.

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Definitions:

Step-fixed Costs

Expenses that remain constant over a range of production but can change when production exceeds certain levels.

Inflationary Price Increase

A rise in prices across the board that is often attributed to an increase in the money supply or demand outpacing supply.

Absorption Costing

An accounting method that includes all manufacturing costs (direct materials, direct labor, and both variable and fixed overhead) in the cost of a product.

Variable Costs

Additional costs incurred when unit production increases. Variable costs per unit usually are assumed not to vary with volume.