A Company Fails to Record One Storeroom Full of Inventory

question 50

Multiple Choice

A company fails to record one storeroom full of inventory in its year-end inventory records.As a result, this will cause:

• A) an overstatement of cost of goods sold for the current year.
• B) an overstatement of inventory on the year-end balance sheet.
• C) an overstatement of retained earnings at the end of the year.
• D) an understatement of gross profit in the following year.

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Definitions:

Negative Externality

A cost that affects a party who did not choose to incur that cost or benefit, often seen in environmental pollution affecting bystanders not involved in the production or consumption causing the pollution.

Loud Music

High amplitude sound that can be enjoyable in some contexts but may lead to hearing damage or stress in others.

Negative Externality

Costs experienced by a third party or the society as a result of an economic activity, not accounted for by the producer.

Automobile Transportation

The transportation of passengers or goods by vehicles designed for travel on roads.