During the Taking of Its Physical Inventory on December 31

question 55

Multiple Choice

During the taking of its physical inventory on December 31, 2014, Barry's Bike Shop incorrectly counted its inventory as $350,000 instead of the correct amount of $280,000. The effect on the balance sheet and income statement would be

• A) assets overstated by $70,000; retained earnings understated by $70,000; and net income statement understated by $70,000
• B) assets overstated by $70,000; retained earnings understated by $70,000; and no effect on the income statement
• C) assets, retained earnings, and net income all overstated by $70,000
• D) assets and retained earnings overstated by $70,000; and net income understated by $70,000

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Definitions:

Producer Surplus

The difference between the amount a producer is willing to accept for a good or service and the actual amount received by them when the good or service is sold.

Total Surplus

A combination of consumer and producer surplus that signifies the overall net advantage to society from the consumption and production of a good or service.

International Trade

involves the exchange of goods and services across international borders or territories.

Import/Export

The exchange of goods, services, and capital between different countries or territories, enhancing global economic interdependence.