An Analysis of a Company's Inventory Indicates That Inventory at the End

question 20

Multiple Choice

An analysis of a company's inventory indicates that inventory at the end of 2016 was understated by $30,000 due to an inventory count error.Inventory at the end of 2017 was correctly stated.The company uses the periodic system of inventory and its fiscal year-end is December 31.Given this information,which of the following statements is correct?

• A) The net income of 2016 is overstated and a retrospective correction should be made.
• B) The net income of 2017 is overstated and should be corrected.
• C) The 2017 year-end retained earnings are overstated and a prospective correction should be made.
• D) The net income of 2017 is understated and should be corrected.

Understand the significance of identification in a sales or lease contract.

Comprehend the distinction between shipment and destination contracts and their impact on the risk of loss.

Understand when and how title and risk of loss pass from the seller to the buyer or lessee.

Grasp the rights of parties to insure the goods involved in the transaction.

---

Definitions:

Long-run Equilibrium

A state in which all firms in a perfectly competitive market earn zero economic profits, with no incentives for new firms to enter or existing firms to exit.

Decrease in Demand

A situation where consumers' willingness and ability to purchase a product at all price levels declines, represented by a leftward shift of the demand curve.

Constant-cost Industry

An industry in which the input prices and production costs remain stable even as the industry output changes.

Economic Profits

The surplus remaining after total costs are subtracted from total revenue, taking into account both explicit and implicit costs.