What is the total effect of the errors on 2005 net income?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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An insurance premium of P3,600 was prepaid in 2004 covering the years 2004, 2005,and 2006. The entire amount was charged to expense in 2004. In addition, on December 31, 2005, fully depreciated machinery was sold for P6,400 cash, but the sale was not recorded until 2006. There were no other errors during 2004 or 2005, and no corrections have been made for any of the errors. Ignore income tax considerations. What is the total effect of the errors on 2005 net income?
Choices;
Net income is understated by P5,200
Net income is overstated by P3,600
Net income is understated by P1,600
Net income is overstated by P2,400
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