For Several Years, an Entity's Physical Inventory Count Has Been

question 52

Multiple Choice

For several years, an entity's physical inventory count has been lower than what was shown on the books at the time of the count so that downward adjustments to the inventory account were required. Contributing to the inventory problem could be weaknesses in internal controls that led to the failure to record some:

• A)purchases returned to vendors.
• B)sales returns received.
• C)sales discounts allowed.
• D)cash purchases.

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Definitions:

Earnings Multiple

A valuation metric that shows how much investors are willing to pay for one dollar of earnings; commonly used in the P/E (price-to-earnings) ratio.

Extraordinary Item

Transactions and events that are both unusual and infrequent in nature, distinctly separate from the ordinary activities of the company, often excluded from the assessment of its ongoing operational performance.

Transitory Earnings

Earnings that are considered to be non-recurring or not indicative of the company's future earning potential.

Permanent Earnings

Profits generated by a company that are expected to continue in the future, excluding one-time events or transactions.