What Effect (If Any) Would the Unrealized Profits in Ending

question 38

Multiple Choice

What effect (if any) would the unrealized profits in ending inventory have on income tax expense for 2012?

• A) They would cause a $1,600 reduction in income tax expense.
• B) They would cause a $1,200 reduction in income tax expense.
• C) They would cause a $1,200 increase in income tax expense.
• D) They would cause a $1,600 increase in income tax expense.

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Definitions:

Investing Activity

Investing activity involves transactions related to the acquisition and disposal of long-term assets and investments, reflecting a company's expenditures on future growth.

Equipment

Tangible property used in the operation of a business, not intended for resale.

Operating Activity

Transactions and other events that affect the net income of a business, typically from primary business operations.

Statement of Cash Flows

A document that outlines the effects of changes in accounts on the balance sheet and revenue on cash and cash equivalents, categorized by operating, investing, and financing actions.