Use the Following Information for Questions

question 9

Multiple Choice

Use the following information for questions.
Cheyenne Ltd.'s December 31 year-end financial statements contained the following errors: An insurance premium of $ 3,600 was prepaid in 2019 covering the calendar years 2019, 2020, and 2021. This had been debited to insurance expense. In addition, on December 31, 2020, fully depreciated machinery was sold for $ 1,900 cash, but the sale was not recorded until 2021. There were no other errors during 2020 or 2021 and no corrections have been made for any of the errors. Ignore income tax considerations.
-What is the total effect of the errors on the balance of Cheyenne's retained earnings at December 31, 2020?

• A) Retained earnings understated by $ 2,000
• B) Retained earnings understated by $ 900
• C) Retained earnings understated by $ 500
• D) Retained earnings overstated by $ 700

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Definitions:

Work Centers

Locations within a manufacturing operation where specific tasks are carried out, usually consisting of one or more machines or work areas.

Process-oriented Layout

A way of arranging equipment and workstations in a workspace where similar processes are grouped together, aimed at optimizing efficiency in production or service operations.

Material Flow

The movement, storage, control, and protection of materials, goods, and products throughout the process of manufacturing, warehousing, distribution, consumption, and disposal.

Minimize Distance

The objective to reduce the total length or travel time between points, often in logistics, routing, or layout planning.