Merchandise Inventory at the End of the Year Is Overstated

question 128

Multiple Choice

Merchandise inventory at the end of the year is overstated.Which of the following statements correctly states the effect of the error?

• A)stockholders' equity is overstated
• B)cost of merchandise sold is overstated
• C)gross profit is understated
• D)net income is understated

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Definitions:

Delivery Cycle Time

The total time taken from receiving a customer order to delivering the finished product to the customer, encompassing all stages of the order processing and production process.

Turnover

The rate at which inventory or assets of a business are replaced or sales are made over a specific period.

Margin

Generally refers to the difference between the selling price of a good or service and its cost, expressed as a percentage of the selling price.

Residual Income

The income that remains after deducting all required costs of capital from operating income, used as a measure of profitability.