If Taylor Corp $\begin{array}{cc}\text { Effect on 2018 Net Income } & \text { Effect on 2017 Net Income } \\\end{array}$

question 167

Short Answer

If Taylor Corp.understates its ending inventory balance for 2017 by $15,500 and it is not corrected,what are the effects on its net income for 2018 and 2017?
$\begin{array}{cc}\text { Effect on 2018 Net Income } & \text { Effect on 2017 Net Income } \\\end{array}$
a. $\begin{array}{cc} \text { Overstated by } \$ 15,500 && \text { Understated by } \$ 15,500 \\\end{array}$
b. $\begin{array}{cc}\text { Understated by } \$ 15,500 && \text { Overstated by } \$ 15,500 \\\end{array}$
c. $\begin{array}{cc}\text { Understated by } \$ 15,500 && \text { No effect } \\\end{array}$
d. $\begin{array}{cc}\text { Overstated by } \$ 15,500 &&& \text { No effect }\end{array}$

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Definitions:

Total Fixed Costs

The sum of all consistent, non-variable expenses a company must pay, regardless of its level of production.

Total Costs

The total of all costs associated with manufacturing goods or providing services, encompassing both fixed and variable expenses.

Total Variable Costs

The overall expenses that change in proportion to the activity of a business, such as production volume or units of service delivered.

Total Fixed Costs

The sum of all costs that remain constant regardless of the level of production or output within a specific period.