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

question 92

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 2010 financial statements?

• A)Current assets were overstated and net income was understated.
• B)Current assets were understated and net income was understated.
• C)Current assets were overstated and net income was overstated.
• D)Current assets were understated and net income was overstated.

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Definitions:

EOQ

The calculation used by businesses to find the ideal number of units to order that minimizes the overall costs related to inventory, including storage and ordering costs.

Quantity Discounts

Price reductions offered to buyers who purchase in bulk or exceed specified quantities, incentivizing larger orders.

Cycle Counting

An inventory auditing procedure where a small subset of inventory, in a specific location, is counted on a specified day.

Cyclical Items

Goods or services whose demand fluctuates in a predictable pattern over time due to seasonal, economic, or other cyclic factors.