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.

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Definitions:

Budget Surplus

A situation where a government's revenue exceeds its expenditures during a specific period of time.

Tax Liability

The total amount of tax owed to a taxing authority, such as the government, based on taxable income and tax rate.

Tax Revenue

The income that is gained by governments through taxation, used to fund public services and government obligations.

Social Security

A government program that provides financial assistance to people with inadequate or no income, primarily the elderly, disabled, and families with dependent children.