Newcastle Company Has the Following Inventory Data for the Current

question 60

Multiple Choice

Newcastle Company has the following inventory data for the current period: Assume that the ending inventory is understated by $5,000.What is the effect on the current period's net income?

• A)It will be overstated by $5,000.
• B)It will be understated by $5,000.
• C)It will be understated by $20,000.
• D)The inventory error will have no effect on net income.

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Definitions:

Direct Method

A way of preparing the cash flow statement where actual cash flows from operating activities are listed directly.

Periodic Inventory System

An accounting method where inventory is physically counted and valued at specific intervals, typically at the end of an accounting period.

Ending Inventory

The value of goods available for sale at the end of an accounting period, calculated before the next period begins.

Merchandise Purchases

Transactions where a business acquires goods to be sold later, often at a profit.