A Broadcasting Company Failed to Make a Year-End Accrual of $400,000

question 79

Multiple Choice

A broadcasting company failed to make a year-end accrual of $400,000 for fines due to a violation of FCC rules. Its tax rate is 30%. As a result of this error, net income was:

• A)Unaffected.
• B)Overstated by $400,000.
• C)Overstated by $280,000.
• D)Overstated by $120,000.$400,000 (1 0%) = $400,000 Fines paid for violations of the law are not tax deductible.

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Definitions:

Materials

Substances or components that are used in the manufacturing or production of goods.

Annual Fixed Costs

Costs that do not vary with the volume of production or sales and are incurred on a yearly basis.

Variable Costs

Expenses that vary directly with levels of production.

Fixed Costs

Fixed costs refer to the expenses that do not change with the level of production or sales, such as rent, salaries, and insurance.