The Understatement of the Ending Inventory Balance Causes

question 34

Multiple Choice

The understatement of the ending inventory balance causes:

• A) Cost of goods sold to be understated and net income to be understated.
• B) Cost of goods sold to be overstated and net income to be understated.
• C) Cost of goods sold to be overstated and net income to be overstated.
• D) Cost of goods sold to be overstated and net income to be correct.
• E) Cost of goods sold to be understated and net income to be overstated.

---

Definitions:

Firm's Beta

A measure of a company's stock volatility compared to the market as a whole, indicating its relative risk.

Profits

The financial gain realized when the amount of revenue gained from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.

Interest Rate Volatility

The degree of variation of interest rates over time, impacting the valuation of financial instruments and the ability to forecast future rates.

Balance Sheets

Financial statements that summarize a company's financial position, including assets, liabilities, and shareholders' equity at a specific point in time.