Mikey Uses a Periodic Inventory System and Committed an Error

question 8

Multiple Choice

Mikey uses a periodic inventory system and committed an error that understated inventory at the end of Year One. If no further errors occur, at the end of Year Two:

• A) profit is overstated; equity is overstated.
• B) profit is overstated; equity is correct.
• C) profit is understated; equity is understated.
• D) profit is understated; equity is overstated.

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Definitions:

Marginal Tax Rate

The rate at which the last dollar of taxpayers' income is taxed, indicating how much tax will be paid on an additional dollar of income.

Tax Liability

The total amount of tax owed to the government by an individual, corporation, or other entity for a given period.

Taxable Income

Taxable income is the amount of income subject to tax, after all deductions and exemptions have been accounted for.

Average Tax Rate

the proportion of total income that is paid in taxes, calculated by dividing the total amount of taxes paid by the total income.