The Level of Real Income of a Firm Can Be

Multiple Choice

The level of real income of a firm can be distorted by the reporting of depreciation and interest expense. During periods of high inflation, the level of reported depreciation tends to __________ income, and the level of interest expense reported tends to __________ income.

A) understate; overstate
B) understate; understate
C) overstate; understate
D) overstate; overstate
E) There is no discernible pattern.