Assume That Ending Inventory in Fiscal 2016 Is Overstated by $1,000.What

question 13

Multiple Choice

Assume that ending inventory in fiscal 2016 is overstated by $1,000.What impact will this have on fiscal 2017 financial reporting?

• A)Retained earnings is overstated by $1,000.
• B)No effect on inventory value on the balance sheet.
• C)Retained earnings is understated by $1,000.
• D)Inventory is understated on the balance sheet.

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Definitions:

Contingent Liabilities

Potential liabilities that may occur depending on the outcome of a future event, which are recorded in the financial statements if the occurrence is likely and the amount can be reasonably estimated.

Potential Obligation

This term refers to a possible future liability that might arise as a result of past events or transactions, dependent on certain occurrences.