If a Company Understates Its Ending Balance of Inventory in Year

question 79

Multiple Choice

If a company understates its ending balance of inventory in year 1 and it records inventory correctly in year 2, which one of the following is true?

• A) Net income is overstated in year 1.
• B) Cost of goods sold is understated in year 2.
• C) Net income is understated in year 2.
• D) Retained earnings is understated in year 2.

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Definitions:

Best Practice

A methodology or strategy recognized widely as surpassing all other options due to its ability to yield superior outcomes compared to other approaches.

Benchmarking Partner

An entity against which a company measures its processes, practices, or performance for improvement.

Same Type Of Business

Companies or enterprises that operate in the same industry or sector, often offering similar products or services.

Balanced Scorecard

A strategic planning and management system that uses a broad range of financial and non-financial metrics to assess an organization's performance.