If an Error in Valuing Inventory Occurs in One Year

question 89

Multiple Choice

If an error in valuing inventory occurs in one year:

• A) It has no effect upon profit in the following year.
• B) It has no effect upon the income statement, only on the statement of financial position.
• C) It is self-correcting after two years.
• D) Retained earnings will be adversely affected until corrected.

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Definitions:

Expected Rate

An anticipated return or interest rate forecasted for an investment over a specific period.

Capital Asset Pricing Model

A model that describes the relationship between systematic risk and expected return for assets, particularly stocks, suggesting that the expected return on an investment is related to its risk level.

Portfolio Variance

A measure of the dispersion of returns of a portfolio from its mean, indicating the level of investment risk.

Portfolio Beta

A measure of the sensitivity of a portfolio's returns to market returns, representing its relative market risk.