Question

Each of the following assets is correctly linked with how it can be overstated EXCEPT:

a) inventory can be overstated by improperly capitalizing these assets
b) marketable securities can be overstated because they are not widely traded, and it is difficult to assign an accurate value to the securities
c) fixed assets can be overstated by leaving expired assets on the books
d) assets can be inflated in mergers, acquisitions, and restructuring by having the wrong entity act as the acquirer

Answer 1

The option that does NOT correctly describe how an asset can be overstated is option (d), as it relates to the structure of a merger, acquisition, or restructuring rather than an accounting method leading to overstatement of assets.

Step-by-step explanation:

The question asks to identify which option is NOT a correct way in which an asset can be overstated. The following analysis is provided:

• Inventory can be overstated if it is improperly capitalized instead of being expensed.
• Marketable securities can be overstated when there is difficulty in assigning an accurate value due to their lack of liquidity.
• Fixed assets might be overstated by not removing fully depreciated or obsolete assets from the books.
• The option regarding assets in mergers, acquisitions, and restructuring does not pertain directly to overstatement of assets through accounting methods but rather refers to the structure of a deal which could impact the valuation of combined entities' assets.

Thus, the correct answer is option (d) as it does not describe an overstatement of assets but a structural issue in a deal that could lead to changes in how assets are recorded and valued.