Strong Company's December 31 Year-End Financial Statements Contained the Following

question 9

Multiple Choice

Strong Company's December 31 year-end financial statements contained the following errors: An insurance premium of $3,600 was prepaid in 2013 covering the years 2013,2014,and 2015.The entire amount was charged to expense in 2013.In addition,on December 31,2014,fully depreciated machinery was sold for $6,400 cash,but the sale was not recorded until 2015.There were no other errors during 2013 or 2014,and no corrections have been made for any of the errors.Ignore income tax considerations.What is the total effect of the errors on 2014 net income?

• A) Net income is understated by $12,800.
• B) Net income is overstated by $3,600.
• C) Net income is understated by $1,600.
• D) Net income is overstated by $2,400.

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Definitions:

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