If a Company Understates Its Count of Ending Inventory in Year

question 27

Multiple Choice

If a company understates its count of ending inventory in Year 1,which of the following is true?

• A)Costs of good sold is understated at the end of Year 1.
• B)Profit is correct in Year 2.
• C)The balance of retained earnings is overstated at the end of Year 1.
• D)The balance of retained earnings is correct at the end of Year 2.

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Definitions:

Satisficing

A decision-making strategy that seeks an adequate solution rather than the optimal one, based on the practicality of attaining satisfactory results within limitations.

Ambiguity

Ambiguity involves situations or information that are unclear, uncertain, or open to more than one interpretation, often leading to confusion or misunderstanding.

Uncertainty

A condition characterized by a lack of sufficient knowledge, making it difficult to precisely define the current situation, predict a future event, or identify multiple potential outcomes.

Certainty

The state or quality of being free from doubt or reservations; a condition of being sure about something.