An insurance premium of 18000 was prepaid in 2010 covering

Reference no: EM13599137

Langley Company's December 31 Year-End Financial statements contained the following errors:

Dec 31, 2010 Dec 31, 2011
Ending Inventory 7,500 understated 11,000 overstated
Depreciation Exp. 2,000 understated

An insurance premium of 18,000 was prepaid in 2010 covering the years 2010,2011, and 2012. The prepayment was recorded with a debit to insurance expense. In addition, on December 31, 2011, fully depreciated machinery was sold for 9,500 cash, but the sale was not recorded until 2012. There were no other errors during 2011 or 2012 and no corrections have been made for any of the error. Ignore income tax considerations.

What is the total net effect of the errors on Langley's 2011 net income?
A) net income understated by 14,500
B) net income overstated by 7,500
C) net income overstated by 13,000
D) net income overstated by 15,000

What is the total net effect of the errors on the amount of Langley's working capital at December 31,2011?
A) working capital overstated by 5,000
B) working capital overstated by 1,500
C) working capital understated by 4,500
D) working capital understated by 12,000

What is the total effect on the errors on the balance of Langley's retained earnings at December 31,2011?
A) retained earnings understated by 10,000
B) retained earnings understated by 4,500
C) retained earnings understated by 2,500
D) retained earnings overstated by 3,500

Reference no: EM13599137

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