Use the Following Information for Questions

question 62

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.
-At December 31, 2020, Grant Corp.'s auditor discovered the following errors:
1) Accrued salaries payable of $ 11,000 were NOT recorded at December 31, 2019.
2) Office supplies on hand of $ 5,000 at December 31, 2020 had been treated as expense instead of supplies inventory.
Neither of these errors was discovered nor corrected. The effect of these two errors would cause

• A) 2020 net income to be understated $ 16,000 and December 31, 2020 retained earnings to be understated $ 5,000.
• B) 2019 net income and December 31, 2019 retained earnings to be understated $ 11,000 each.
• C) 2019 net income to be overstated $ 6,000 and 2020 net income to be understated $ 5,000.
• D) 2020 net income and December 31, 2020 retained earnings to be understated $ 5,000 each.

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Definitions:

Elderly Patients

Individuals of advanced age, typically over the age of 65, receiving medical care or treatment.

Diagnostic Testing

Medical tests performed to aid in the diagnosis or detection of disease, injury, or other medical conditions.

Screening

The process of testing or examining individuals for the presence of diseases or conditions before symptoms are apparent.

Physical Therapy

A branch of rehabilitative healthcare that uses specially designed exercises and equipment to help patients regain or improve their physical abilities.