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There is an error in computing ending inventory in Year 1. Which statement is TRUE? Question...

There is an error in computing ending inventory in Year 1. Which statement is TRUE?

Question 10 options:

A)

 The total gross profit for Year 1 and Year 2 combined will be correct.

B)

 Gross profit will continue to be incorrect until an adjusting entry is made.

C)

 The error will have no effect on Year 2 financial statements.

D)

After three years, the inventory error will counterbalance.

Which of the following is a CORRECT statement about the lower-of-cost-or market rule when applied to inventories?

Question 15 options:

A)

 Under U.S. GAAP, once inventory has been written down to market value, the write-downs can be reversed in future periods.

B)

 Currently, the lower-of-cost-or-market rules are the same for both U.S. GAAP and IFRS.

C)

 Under U.S. GAAP, the lower-of-cost-or-market rule is optional.

D)

 Under IFRS, some lower-of-cost-or-market write-downs may be reversed.
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Answer #1

OPTION B: Gross profit will continue to be incorrect until an adjusting entry is made

EXPLANATION:

If the error results in overstatement of ending inventory, gross profit will also be overstated and visa versa. Therefore error in computing ending inventory has a bearing on gross profit making it also incorrect.

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