Use the Following Information for the Following Questions:
Giselle

question 146

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 no correcting entries were made at December 31, 2019, or December 31, 2020 and that no additional errors occurred in 2021. Ignoring income taxes, by how much will working capital, at December 31, 2021 be overstated or understated?

• A) $0
• B) $4,000 overstated
• C) $4,000 understated
• D) $6,000 understated

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Definitions:

Tax Liability

The total amount of tax that individuals, corporations, or other entities are legally obligated to pay to a taxing authority.

Misstate Information

To provide incorrect or misleading information, either intentionally or unintentionally.

Criminal Sanctions

Punishments or penalties imposed for violations of criminal laws, intended to deter illegal activities and punish offenders.

Punitive Fines

Financial penalties imposed by a court, not to compensate the plaintiff, but to punish the defendant and deter future misconduct.