The Ending Merchandise Inventory for the Current Year Is Overstated

question 68

Multiple Choice

The ending merchandise inventory for the current year is overstated by $25,000.What effect will this error have on the following year's net income?

• A) The net income will be overstated by $50,000.
• B) The net income will be overstated by $25,000.
• C) The net income will be understated by $25,000.
• D) The net income will be understated by $50,000.

---

Definitions:

High Tax Rates

Elevated percentages of an individual's or company's income that must be paid to the government, affecting disposable income and investments.

Laffer Curve

A theoretical representation suggesting that there is an optimal tax rate that maximizes revenue without discouraging economic activity.

Classical Economists

Economists and thinkers primarily from the 18th and 19th centuries, such as Adam Smith, David Ricardo, and John Stuart Mill, who focused on developing theories about the workings of market economies.

Quantity Theory of Money

An economic theory which proposes that the amount of money in an economy is directly proportional to the level of economic activity.