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Accounting ErrorsThe shannon corporation began operations on january 1 2010. financial statements for the years ended december 31 2010 and 2017, contained the following errors: December 31 2016 2017Ending inventory $16,000 $15,000 understated overstatedInsurance expense $10,000 $10,000 overstated understatedPrepaid insurance $10,000 — understated In addition, on December 31, 2017, fully depreciated machinery was sold for $10,800 cash, but the sale was not recorded until 2018. There were no other errors during 2016 or 2017, and no corrections have been made for any of the errors. Ignoring income taxes, what is the total effect of the errors on 2017 net income?
A. Net income overstated by $5,800.B. Net income overstated by $11,000.C. Net income overstated by $14,200.D. Net income understated by $1,800.

Sagot :

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Answer:

C. Net income overstated by $14,200

Explanation:

Effect of errors on 2017 net income = Overstated ending inventory + Understated insurance expense - Understated income on sale of machinery

Effect of errors on 2017 net income = $15,000 + $10,000 - $10,800

Effect of errors on 2017 net income = $14,200 Overstated.

So, the total effect of the errors on 2017 net income is overstated by $14,200

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