A Department Store Had Items in Its Inventory at the End

question 75

Multiple Choice

A department store had items in its inventory at the end of the year that had a recorded book value of $10,000 and, because of fashion changes, a market value of only $7,000.The department store failed to write down these inventory items to market value.To keep the obsolete condition of the inventory items away from its auditors, the firm shipped the goods to a remote warehouse.The effect of this error was to

• A)understate the inventory turnover ratio.
• B)overstate the cost of goods sold to sales percentage.
• C)overstate the total assets turnover ratio.
• D)understate net income.
• E)none of the above

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Definitions:

Tables

A systematic arrangement of data in rows and columns for easy reference and analysis.

Pie Graph

A circular chart divided into sectors, each representing a proportion of the whole.

Vertical Axis

In various contexts, this term can refer to the up-and-down direction in a coordinate system, or metaphorically, to hierarchical levels within organizations.

Line Graph

A type of chart used to display information as a series of data points connected by straight line segments.