If a Company Overstates Its Ending Balance of Inventory in Year

question 90

Multiple Choice

If a company overstates its ending balance of inventory in year 1 and it records inventory correctly in year 2,which one of the following is true?

• A)Net income is overstated in year 2.
• B)Cost of goods sold is overstated in year 1.
• C)Net income is understated in year 1.
• D)Retained earnings is overstated in year 1.

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Definitions:

Extraordinary

Something that is very unusual or remarkable, often exceeding the normal or expected.

Exceptional Expertise

A high level of specialized knowledge or skill in a particular domain, significantly surpassing the ordinary.

Executives

Individuals who hold senior management positions within an organization, responsible for decision-making and strategic direction.

Objectively Evaluate

The process of assessing or examining something in a way that is not influenced by personal feelings, interpretations, or prejudice.