Newcastle Company Has the Following Inventory Data for the Current

question 136

Multiple Choice

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

• A)Net Income this period will be overstated by $5,000 and next period will be understated by $5,000.
• B)Net income this period will be understated by $5,000 and next period will be understated by $5,000.
• C)Net income this period will be overstated by $5,000,but next period will be correctly stated.
• D)Net income this period will be understated by $5,000 and next period will be overstated by $5,000.

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Definitions:

Four-factor Model

A financial model that expands the three-factor model (market risk, size risk, and value risk) by adding a momentum factor to explain stock returns.

Fama and French Factors

Fama and French factors are three factors—market risk, size risk, and value risk—used in explaining portfolio returns beyond the market risk measured by beta.

Semistrong-form

A theory suggesting that stock prices incorporate all publicly available information, including historical data and public news.

Efficient Market Hypothesis

A theory stating that share prices reflect all available information, making it impossible to consistently achieve higher returns.