If the revenues are correctly reported and the gross profit of a company is understated, what is the effect on stockholders' equity?
A) understated
B) overstated
C) correctly stated
D) none of these

Question

Quizplus · Accepted Answer

If gross profit is understated, it means that expenses are overstated, leading to a lower net income. This lower net income reduces stockholders' equity, hence it is understated.

If the Revenues Are Correctly Reported and the Gross Profit