Use the Following Information for Questions

question 65

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 net effect of the errors on Cheyenne's 2020 net income?

• A) Net income understated by $ 2,900
• B) Net income overstated by $ 1,500
• C) Net income overstated by $ 2,600
• D) Net income overstated by $ 3,000

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Definitions:

Specific Behaviors

Distinctive actions or conduct of individuals that are observable and measurable, often used as criteria for performance evaluations or research studies.

Ethical

Pertaining to or dealing with morals or the principles of morality; concerning right and wrong behavior.

Greatest Good

A principle often associated with utilitarianism, emphasizing actions that maximize happiness or benefits for the largest number of people.

Due Process

A legal principle ensuring fair treatment through the normal judicial system, especially as a citizen's entitlement.