At the End of 20X1, a $2,500 Understatement Was Discovered

question 40

Multiple Choice

At the end of 20X1, a $2,500 understatement was discovered in the amount of the 20X1 ending inventory as reflected in the perpetual inventory records. What were the 20X1 effects of the $2,500 inventory error (before correction) ?

• A) Assets (inventory) were understated by $2,500 and pretax profit was understated by $2,500.
• B) Assets (inventory) were understated by $2,500 and pretax profit was overstated by $2,500.
• C) Cost of goods sold was understated by $2,500 and pretax profit was understated by $2,500.
• D) Cost of goods sold was overstated by $2,500 and pretax profit was overstated by $2,500.

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Definitions:

Extrinsic Rewards

Benefits given to an individual, such as pay, bonuses, or other incentives, which come from an external source rather than the satisfaction from the task itself.

Intrinsic Motivation

A drive to engage in activities due to internal rewards and personal satisfaction, rather than for external rewards.

Inherent Rewards

Inherent Rewards are the personal satisfaction and inner fulfillment individuals receive from engaging in meaningful work or accomplishing a task.

Gainsharing Plan

A performance-related pay strategy designed to involve employees in improving productivity through sharing the resultant financial gains.