Answered: 100,000 understated. On

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Shannon Company began operations on January 1, 2020. The financial statement contained the following errors: YEAR 2020- Ending inventory 160,000 understated; Depreciation expense 60,000 understated; Insurance expense 100,000 overstated; Prepaid insurance 100,000 understated; YEAR 2021 - Ending inventory 150,000 overstated; Insurance expense 100,000 understated. On December 31, 2021, fully depreciation machinery was sold for P110,000 cash but the sale was not reported until 2022. No corrections have been made for any of the errors. Ignoring income tax, what amount should be reported as net effect of the errors on Net Income for 2020?

a. 200,000 over

b. 200,000 under

c. 260,000 under

d. 0

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