Use the Following Information for Questions

question 75

Multiple Choice

Use the following information for questions.
Langley Company's December 31 year-end financial statements contained the following errors:

An insurance premium of $18,000 was prepaid in 2010 covering the years 2010, 2011, and 2012.The prepayment was recorded with a debit to insurance expense.In addition, on December 31, 2011, fully depreciated machinery was sold for $9,500 cash, but the sale was not recorded until 2012.There were no other errors during 2011 or 2012 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 2011 net income?

• A)Net income understated by $14,500.
• B)Net income overstated by $7,500.
• C)Net income overstated by $13,000.
• D)Net income overstated by $15,000.

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Definitions:

Nominal GDP

GDP that has not been adjusted to account for inflation.

GDP Deflator

An economic measure that adjusts the Gross Domestic Product (GDP) by accounting for changes in price levels or inflation.

Gross Domestic Product

The overall economic value of all produced goods and services within the borders of a country, measured over a designated time period.

Output Value

The total value of all goods and services produced by an individual, company, or country.