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By Accounting Mcqs 1 Comment

During the year 2011-2012, the value of closing inventory was overstated by 25,000. Which of the following is true?

A. The cost of goods sold was overstated during 2011-2012 and income will be understated during 2012-2013
B. The income was overstated during 2011-12 and closing inventory will be overstated during 2012-2013
C. The retained earnings was overstated during 2011-2012 and retained earnings will be understated during 2012-2013
D. The cost of goods sold was understated during 2011-2012 but retained earnings will not be affected during 2012-2013

Closing Stock‘s overstatement increases the profit of the current period and results in the increase of retained earnings relating to the current accounting period. It decreases the profit and thereby retained earnings of the next accounting period since the closing stock of the current accounting period becomes the opening stock of the next accounting period, the overstatement of which has the effect of decreasing the profits and retained earnings.

Related Mcqs:

  1. The beginnings inventory of the current year is overstated by 5,000 and closing inventory is overstated by 12,000. These errors will cause the net income for the current year by

    A. 17,000 (overstated.
    B. 12,000 (understated.
    C. 7,000 (overstated.
    D. 7,000 (understated.

  2. Budgeted sales for the next year is 5,00,000 units. Desired ending finished goods inventory is 1,50,000 units and equivalent units in ending W-I-P inventory is 60,000 units. The opening finished goods inventory for the next year is 80,000 units, with 50,000 equivalent units in beginning W-I-P inventory How many equivalent units should be produced?

    A. 5,80,000
    B. 5,50,000
    C. 5,00,000
    D. 5,75,000

  3. For the past 3 years, DK Ltd. has failed to accrue unpaid wages earned by workers during the last week of the year. The amounts omitted, which were considered material, were as follows:
    March 31,2010 – ` 56,000
    March 31, 2011 – ` 51,000
    March 31, 2012 – ` 64,000
    The entry on March 31, 2012 to rectify these omissions would include a

    A. Credit to wage expense for ` 64,000
    B. Debit to wage expense for ` 64,000
    C. Debit to wage expense for ` 51,000
    D. Debit to wage expense for ` 13,000

  4. Find the value of opening stock from the following data. Purchases 1,50,000, Closing stock 30,000 Sales 2,20,000, Gross profit 40,000.

    A. 50,000
    B. 55,000
    C. 60,000
    D. 65,000

  5. While finalizing the current year‘s accounts, the company realized that an error was made in the calculation of closing stock of the previous year. In the previous year, closing stock was valued more by 50,000. As a result

    A. Previous year‘s profit is overstated and current year‘s profit is also overstated.
    B. Previous year‘s profit is understated and current year‘s profit is overstated.
    C. Previous year‘s profit is overstated and current year‘s profit is understated.
    D. There will be no impact on the profit of either the previous year or the current year.

  6. Which of the following statements is true with regard to written down value method of depreciation?
    i. The rate at which the asset is written off reduces year after year
    ii. The amount of depreciation provided reduces from year to year
    iii. The rate of depreciation as well as the amount of depreciation reduce year after year
    iv. The value of the asset gets reduced to zero over a period of time

    A. Only (i) above
    B. Only (ii) above
    C. Both (i) and (ii) above
    D. (i),(ii) and (iii) above

  7. Consider the following data for a company during the month of June 2012 Budgeted hours 4,000 Standard hours for actual production 4,400 Maximum possible hours in the budget period 4,800 Actual hours 3,800 The activity ratio of the company during the month is

    A. 111%
    B. 120%
    C. 95%
    D. 117%

  8. Riaz holds an average inventory of 36,000(CP) with an inventory turnover of 5 times. If the firm makes a gross profit of 25% on sales, find the total sales of the company.

    A. 2,40,000
    B. 2,10,000
    C. 2,00,000
    D. 1,80,000

  9. A company is currently operating at 80% capacity level. The production under normal capacity level is 1,50,000 units. The variable cost per unit is ` 14 and the total fixed costs are ` 8,00,000. If the company wants to earn a profit of ` 4,00,000, then the price of the product per unit should be

    A. 37.50
    B. 38.25
    C. 24.00
    D. 35.00

  10. Which of the following is true regarding closing entries?

    A. They must be followed by reversing entries
    B. They transfer the balances in all of the Nominal Accounts to the Trading and Profit and Loss Account
    C. They must be made after the reversing entries but before the adjusting entries
    D. They must be made after the adjusting entries but before the reversing entries

The correct answer to the question: "During the year 2011-2012, the value of closing inventory was overstated by 25,000. Which of the following is true?" is "The retained earnings was overstated during 2011-2012 and retained earnings will be understated during 2012-2013".

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