Emil Hinkel Owns and Operates a Large Antique Shop

question 135

Essay

Emil Hinkel owns and operates a large antique shop.He uses the specific identification method to account for transactions that affect inventory.Hinkel recently completed a physical inventory of the merchandise in his shop as part of his year-end work.Today,his accountant called to inform him that it would be necessary to adjust the inventory figure shown on the balance sheet,which will increase Hinkel's tax liability.Hinkel argued that the inventory had to be correct,because he counted it twice and matched every item to an invoice.Cite reasons why the accountant would find it necessary to adjust the inventory even if Hinkel's count is accurate.

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Definitions:

Market Equilibrium

The condition where the quantity of a good or service demanded equals the quantity supplied, resulting in no incentive for price to change.

Output Level

The quantity of goods or services produced by a business within a given period.

Allocative Efficiency

A state of the economy in which production represents consumer preferences; in other words, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it.

Long-Run

A period of time in economics during which all factors of production and costs are variable, allowing for complete adjustment to changes.