During the Taking of Its Physical Inventory on December 31

question 55

Multiple Choice

During the taking of its physical inventory on December 31, 2014, Barry's Bike Shop incorrectly counted its inventory as $350,000 instead of the correct amount of $280,000. The effect on the balance sheet and income statement would be

• A) assets overstated by $70,000; retained earnings understated by $70,000; and net income statement understated by $70,000
• B) assets overstated by $70,000; retained earnings understated by $70,000; and no effect on the income statement
• C) assets, retained earnings, and net income all overstated by $70,000
• D) assets and retained earnings overstated by $70,000; and net income understated by $70,000

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Definitions:

Yield To Maturity

The total return anticipated on a bond if it is held until the maturity date, taking into account both the interest payments and capital gains or losses.

Bond Duration

The weighted average time until the cash flows of a bond are received, serving as an indicator of the bond's sensitivity to interest rate changes.

Coupon Rate

The annual interest rate paid by a bond issuer to its bondholders, typically expressed as a percentage of the bond's face value.

Maturity

The date on which the principal amount of a financial instrument, such as a bond or loan, becomes due and payable.