Upaway Company Hired Some Students to Help Count Inventory During

question 64

Multiple Choice

Upaway Company hired some students to help count inventory during their semester break. Unfortunately, the students added incorrectly and ending inventory was overstated by $12,000. What would be the effect of this error in ending inventory?

• A) Profit would be overstated.
• B) Profit would be understated.
• C) Ending retained earnings would be understated.
• D) Cost of goods sold would be overstated.

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Definitions:

Seed Division

A segment within a business or organization that focuses on developing new ideas, projects, or business lines from their initial stages.

Fixed Expenses

Costs that do not change with the level of production or sales within a certain range, such as rent and salaries.

Absorption Costing

An accounting method that includes all direct and indirect manufacturing costs in the cost of a product.

Net Operating Income

The income a company makes from its main business activities before subtracting any costs for interest and taxes.