If Ending Inventory Is Understated by $8,000 in 20X3,and Assuming

question 17

Multiple Choice

If ending inventory is understated by $8,000 in 20X3,and assuming a constant 30% tax rate,then what will be the effect on retained earnings on December 31,20X4?

• A)The 20X4 ending retained earnings will be understated by $2,400.
• B)The 20X4 ending retained earnings will be overstated by $2,400.
• C)The 20X4 ending retained earnings will be understated by $5,600.
• D)The 20X4 ending retained earnings will be overstated by $5,600.
• E)The 20X4 ending retained earnings will not be understated or overstated.

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Definitions:

Management Coefficients Model

A strategic management tool that quantitatively assesses managerial impact on company performance, using coefficients to represent the influence of various management actions.

Linear Decision Rule

A decision-making technique that involves creating a linear equation to model the relationship between variables, used to determine the best course of action under certain conditions.

Allocating Capacity

The process of determining how resources, such as production capacity, are assigned or distributed among various demands or projects.