Use the Following Information for Questions

question 57

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 the amount of Langley's working capital at December 31, 2011?

• A)Working capital overstated by $5,000
• B)Working capital overstated by $1,500
• C)Working capital understated by $4,500
• D)Working capital understated by $12,000

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Definitions:

Risk

The possibility of loss, injury, or other adverse or unwelcome circumstance; a chance or situation involving such a possibility.

Replications

The process of repeating research or experiments to verify results and ensure reliability across different contexts or conditions.

Publication

The act of making content available to the public, typically through books, journals, or digital media.

Hypotheses

Tentative explanations or propositions made on the basis of limited evidence as starting points for further investigation.