At the End of 2016, a $5,000 Understatement Was Discovered

question 34

Multiple Choice

At the end of 2016, a $5,000 understatement was discovered in the amount of the 2016 ending inventory as reflected in the inventory records. What were the 2016 effects of the $5,000 inventory error (before correction) ?

• A)Assets were understated by $5,000 and pretax income was understated by $5,000.
• B)Assets were understated by $5,000 and pretax income was overstated by $5,000.
• C)Cost of goods sold was understated by $5,000 and pretax income was understated by $5,000.
• D)Cost of goods sold was overstated by $5,000 and pretax income was overstated by $5,000.

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Definitions:

Graphing Calculator

An electronic device capable of plotting graphs, solving simultaneous equations, and performing other tasks with variables.

Consumer Surplus

Consumer surplus is the difference between the total amount that consumers are willing to pay for a good or service and the total amount they actually pay, indicating the benefit consumers receive from purchasing at a market price lower than their maximum willingness to pay.

Ice Cream Cones

Frozen dessert treats served in a conical wafer, typically made by filling the cone with scoops of ice cream from one or more flavors.

Consumer Surplus

The difference between what consumers are willing to pay for a good or service and what they actually pay, representing a measure of consumer benefit.