December 31 2019 2020 Ending inventory $16,000 Understated $15,000 Overstated $10,000 Understated Insurance expense $10,000 Overstated Prepaid insurance $10,000 Understated

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Shannon Corporation began operations on January 1, 2019. Financial
statements for the years ended December 31, 2019 and 2020, contained
the following errors:

In addition, on December 31, 2020, fully depreciated machinery was sold
for $10,800 cash, but the sale was not recorded until 2021. There were no
other errors during 2019 or 2020, and no corrections have been made for
any of the errors.
Refer to the information for Shannon Corporation above. Ignoring
income taxes, what is the total effect of the errors 011 2020 net income?
a. net income understated by $1,800
b. net income overstated by $5,800
c. net income overstated by $11,000
net income overstated by $14,200

December 31
2019
2020
Ending inventory
$16,000
Understated
$15,000
Overstated
$10,000
Understated
Insurance expense $10,000
Overstated
Prepaid insurance $10,000
Understated
Transcribed Image Text:December 31 2019 2020 Ending inventory $16,000 Understated $15,000 Overstated $10,000 Understated Insurance expense $10,000 Overstated Prepaid insurance $10,000 Understated
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