If a Company Mistakenly Counts More Items During a Physical

question 136

Multiple Choice

If a company mistakenly counts more items during a physical inventory than actually exist, how will the error affect their bottom line?

• A) No change to net income.
• B) Net income will be overstated
• C) Net income will be understated.
• D) Only gross profit will be affected.

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Definitions:

Life Tenant

A life tenant is an individual who has the right to use and benefit from a property during their lifetime, but does not own the property outright.

Term Lease

A lease agreement that specifies a fixed period of time for the lease of property.

Bailee

A person or entity that has temporary custody or control of another person's property under a bailment agreement.

Liable

Being legally responsible or obligated, especially in the context of paying damages or fulfilling contractual agreements.