Use the Following Information for the Following Questions:
Giselle

question 96

Multiple Choice

Use the following information for the following questions:
Giselle Ltd. is a calendar-year corporation. Its financial statements for the years 2020 and 2019 contained errors as follows:
$$\begin{array} { l l l } &2020&2019\\\text { Ending inventory } & \$ 2,000 \text { overstated } & \$ 3,000 \text { overtated } \\\text { Depreciation expense } & \$ 6,000 \text { understated } & \$ 12,000 \text { overstated }\end{array}$$
-Assume that the proper correcting entries were made at December 31, 2019. By how much will 2020 pre-tax income be overstated or understated?

• A) $2,000 understated
• B) $2,000 overstated
• C) $6,000 overstated
• D) $8,000 overstated

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Definitions:

Economies of Scale

Economic benefits that companies gain from their size of operations, which result in a reduction in the cost per unit as the scale increases.

Horizontal Demand

A market situation where the demand for a product remains constant regardless of changes in its price.

Entrepreneurs

Individuals who, rather than working as employees, found and run small businesses, assuming all the risks and rewards of the venture.

Technological Change

Refers to the improvements and innovations in technology that enhance productivity or enable new products and services.