A $25,000 Overstatement of the 2010 Ending Inventory Was Discovered

question 13

Multiple Choice

A $25,000 overstatement of the 2010 ending inventory was discovered after the financial statements for 2010 were prepared.Which of the following describes the effect of the inventory error on the 2011 financial statements?

• A)Net income and stockholders' equity are both understated.
• B)Net income is understated and stockholders' equity is not affected.
• C)Net income and stockholders' equity are both overstated.
• D)Net income and stockholders' equity are both unaffected.

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Definitions:

Coercive Power

The ability to control others through the threat of punitive measures or the imposition of sanctions.

Reward Power

An entity's capacity to incentivize others through benefits or rewards, thereby exerting influence and encouraging positive behaviors.

Illegitimate Power

Authority or influence that is exerted through unethical, coercive, or unauthorized means, often disregarded by those subjected to it.

Information Power

The influence and control one has due to possessing valuable knowledge, facts, or data that others do not have.