During Year 1, ABC Inc

question 86

Multiple Choice

During Year 1, ABC Inc.'s ending inventory was overstated by $10,000. During Year 2, ABC Inc.'s ending inventory was understated by $20,000. Assuming that the Year 2 books have not yet been closed, the adjustment to Cost of Goods sold would be:

• A) A $30,000 decrease.
• B) A $30,000 increase.
• C) A $20,000 decrease.
• D) A $20,000 increase.

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Definitions:

Capital Assets

Long-term assets acquired for operating purposes, including land, buildings, machinery, and equipment, which are not easily convertible into cash.

Exchange Rates

The equivalent worth of one currency in another during exchange.

Exchange Gain/Loss

The gain or loss resulting from the fluctuation in exchange rates affecting the value of transactions in foreign currencies.

Acquisition Differential

The difference between the purchase price of a company and the fair market value of its identifiable net assets.