During 2018, P Company Discovered That the Ending Inventories Reported

question 109

Multiple Choice

During 2018, P Company discovered that the ending inventories reported on its financial statements were incorrect by the following amounts: P uses the periodic inventory system to ascertain year-end quantities that are converted to dollar amounts using the FIFO cost method. Prior to any adjustments for these errors and ignoring income taxes, P's retained earnings at January 1, 2018, would be:

• A) Correct.
• B) $30,000 overstated.
• C) $150,000 overstated.
• D) $270,000 overstated.

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Definitions:

Gross Method

An accounting method for recording purchases at the full invoice price without deducting any cash discounts offered.

Cash Discounts

A reduction in the amount owed by a customer if payment is made within a specified time frame.

Period-End Adjusting Entry

An accounting record made at the end of an accounting period to allocate income and expenditures to the appropriate period.

Delivery Expense

Costs incurred by a company to transport its products to customers, including freight, shipping, and handling charges.