During the Taking of Its Physical Inventory on December 31

question 59

Multiple Choice

During the taking of its physical inventory on December 31, 2010, Barry's Bike Shop incorrectly counted its inventory as $270,000 instead of the correct amount of $190,000. The effect on the balance sheet and income statement would be as follows:

• A) assets overstated by $80,000; retained earnings understated by $80,000; net income statement understated by $80,000.
• B) assets overstated by $80,000; retained earnings understated by $80,000; no effect on the income statement.
• C) assets and retained earnings overstated by $80,000; net income overstated by $80,000.
• D) assets and retained earnings overstated by $80,000; net income understated by $80,000.

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Definitions:

Right of First Refusal

A contractual right that gives its holder the option to enter a business transaction with the owner of something, before others can.

Franchise Agreement

A legal contract between a franchisor and franchisee, establishing the terms and conditions for the franchisee to operate a franchised business.

Discontinuance

The cessation or closure of a product, service, or business operation.

Viable Way

A method or approach that is feasible and capable of working successfully.