In Order to Overstate Earnings, a Company Can

question 131

Multiple Choice

In order to overstate earnings, a company can:

• A)overstate expenses and overstate revenue.
• B)overstate receivables and understate payables.
• C)understate unearned revenue and understate property, plant and equipment.
• D)understate expenses and understate revenue.

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Definitions:

Fixed Overhead

The portion of total overhead costs that do not change with the level of production or activity within a certain range.

Property, Plant, and Equipment

Long-term tangible assets used in the operation of a business, not expected to be converted to cash in the next year.

Depreciation

The accounting process of allocating the cost of tangible assets over their useful lives.

Direct Labor Variances

The difference between the actual and standard labor costs incurred by a business during a specific period.