If the Ending Inventory Is Overstated by $18,000 in 20X3,and

question 35

Multiple Choice

If the ending inventory is overstated by $18,000 in 20X3,and assuming a constant 30% tax rate,then what will be the effect on net income in 20X4?

• A)Net income will be understated by $5,400 in 20X4.
• B)Net income will be overstated by $5,400 in 20X4.
• C)Net income will be understated by $12,600 in 20X4.
• D)Net income will be overstated by $12,600 in 20X4.
• E)Net income will not be overstated or understated in 20X4.

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Definitions:

Resale Value

The likely selling price of a good or asset if sold at a future date, considering depreciation or appreciation.

Office Furniture

Items designed for use in a work or office setting, including desks, chairs, and file cabinets.

Straight-Line Method

A depreciation method that allocates an equal amount of an asset's cost to each year of its useful life.

Resale Value

The estimated market value of an asset if sold again; often used in reference to vehicles, electronics, and real estate.