Zinke Company Understated Its Ending Inventory at the End of Year

question 77

Multiple Choice

Zinke Company understated its ending inventory at the end of Year 1.Which of the following correctly states the effect of the error on the amounts shown on the Year 1 financial statements?

• A)Overstatement of total assets and cost of goods sold.
• B)Overstatement of cost of goods sold and retained earnings.
• C)Understatement of liabilities and retained earnings.
• D)Understatement of total assets and gross margin.

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Definitions:

Annual Income

The total amount of money earned by an individual or organization in one year from all sources before taxes.

Positively Correlated

A relationship between two variables where if one variable increases, the other one also increases.

Positively Correlated

Refers to a relationship between two variables where they move in the same direction, meaning as one variable increases, the other variable also increases.

Outdoor Temperature

The temperature of the air outside, which can vary widely depending on geographic location, time of day, and season.