Which of the Following Statements Is True

question 31

Multiple Choice

Which of the following statements is true?

• A) Product costs affect only the balance sheet.
• B) Product costs affect only the income statement.
• C) Period costs affect only the balance sheet.
• D) Neither product costs nor period costs affect the Statement of Retained Earnings. This can also be a true statement if the period costs were prepaid (i.e., prepaid advertising, depreciation).
• E) Product costs eventually affect both the balance sheet and the income statement.

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Definitions:

Incentive Conflict

A situation where parties have different, competing goals. In agency relationships, the different goals of principals and agents is an example of incentive conflict.

Agent

A person who acts on behalf of another individual (a principal). Principal–agent problems are created by the incentive conflict between principals and agents.

Principal

An individual who hires another (an agent) to act on his or her behalf.

Incentivize

To motivate or encourage someone by providing a reward or incentive.