The Ending Merchandise Inventory for the Current Accounting Period Is

question 161

Multiple Choice

The ending Merchandise Inventory for the current accounting period is understated by $2,700.What effect will this error have on Cost of Goods Sold and Net Income for the current accounting period?

• A) \[\begin{array} { | l | l | }
• \hline \text { Cost of Goods Sold } & \text { Net Income } \\
• \hline \text { Understated } & \text { Understated } \\
• \hline
• \end{array}\]
• B) \[\begin{array} { | l | l | }
• \hline \text { Cost of Goods Sold } & \text { Net Income } \\
• \hline \text { Overstated } & \text { Overstated } \\
• \hline
• \end{array}\]
• C) \[\begin{array} { | l | l | }
• \hline \text { Cost of Goods Sold } & \text { Net Income } \\
• \hline \text { Understated } & \text { Overstated } \\
• \hline
• \end{array}\]
• D) \[\begin{array} { | l | l | }
• \hline \text { Cost of Goods Sold } & \text { Net Income } \\
• \hline \text { Overstated } & \text { Understated } \\
• \hline
• \end{array}\]

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Definitions:

Automatic Stabilizers

Economic policies and programs, such as unemployment benefits and progressive taxation, that automatically help stabilize an economy by increasing spending in a downturn and reducing spending in an upswing without additional government action.

Private Spending

Private Spending is the total expenditures by individuals and businesses in an economy, excluding government spending and investment.

Transfer Payments

Payments made by the government to individuals or organizations without requiring any goods or services in return, such as welfare checks or social security.

Business Cycle

The fluctuations in economic activity that an economy experiences over a period, typically characterized by expansion (growth) and contraction (recession) phases.