What Effect Will an Overstatement of Ending Inventory at the End

question 66

Multiple Choice

What effect will an overstatement of ending inventory at the end of Year 1 have on the amounts reported on the Year 1 financial statements?

• A)Overstatement of cost of goods sold
• B)Overstatement of total assets
• C)Understatement of net income
• D)Understatement of retained earnings

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Definitions:

Cash Disbursements

Financial payments made by a business, including expenses, creditor payments, and inventory purchases.

Seasonal Merchandise

Products that are particularly popular or in demand during specific seasons or periods of the year.

Maturity Hedging

A financial strategy used to manage the risk associated with the timing of cash flows, particularly the mismatch between asset maturities and liability maturities.

Short-Term Assets

Assets expected to be converted into cash or used up within one year or an operating cycle, whichever is longer.