At the End of the Current Year, a Company Overstated

question 59

Multiple Choice

At the end of the current year, a company overstated prepaid insurance by $80,000 and understated supplies expense by $100,000. Its effective tax rate is 40%. As a result of this error, net income is:

• A) Overstated by $108,000.
• B) Overstated by $12,000.
• C) Understated by $108,000.
• D) Understated by $12,000.

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Definitions:

Family Farm

A farm owned and operated by a family, typically passed down through generations, as opposed to corporate farms owned by companies.

Great Depression

A severe worldwide economic downturn that lasted from 1929 until the early 1940s, marked by massive unemployment and deflation.

1933

A pivotal year during the Great Depression characterized by significant banking crises and the implementation of New Deal policies by President Franklin D. Roosevelt in the United States.

1929

Refers to the year marked by the stock market crash in October, which contributed to the onset of the Great Depression.