Use the Following Information for Questions 57 Through 59

question 98

Multiple Choice

Use the following information for questions 57 through 59.
Langley Company's December 31 year-end financial statements contained the following errors: An insurance premium of $54,000 was prepaid in 2014 covering the years 2014, 2015, and 2016. The prepayment was recorded with a debit to insurance expense. In addition, on December 31, 2015, fully depreciated machinery was sold for $28,500 cash, but the sale was not recorded until 2016. There were no other errors during 2015 or 2016 and no corrections have been made for any of the errors. Ignore income tax considerations.
-What is the total net effect of the errors on Langley's 2015 net income?

• A) Net income understated by $43,500.
• B) Net income overstated by $22,500.
• C) Net income overstated by $39,000.
• D) Net income overstated by $45,000.

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Definitions:

Company Officers

Individuals appointed by the board of directors who manage the daily operations of a company, such as the CEO, CFO, and COO.

Loans

Borrowed money that must be repaid, typically with interest, according to agreed terms and conditions.

Percentage

A proportion or share in relation to a whole, represented as a number out of 100.

Receivables Basis

An accounting method that recognizes revenue when related receivables are actually or constructively received.