If an Error in Valuing Inventory Occurs in One Year

question 132

Multiple Choice

If an error in valuing inventory occurs in one year:

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

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Definitions:

Ownership Of Scarce Inputs

The possession and control over resources that are limited in nature and necessary for production.

Network Externalities

The effect that one user of a good or service has on the value of that product to other people, where the value increases as the number of users rises.

Economies of Scale

Cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output.

Natural Monopoly

A monopoly that exists when increasing returns to scale provide a large cost advantage to having all output produced by a single firm.