Choose the correct answer

Accrued salaries payable of $51,000 were not recorded at December 31, 2014. Office supplies on hand of $29,000 at December 31, 2015 were erroneously treated as expense instead of supplies inventory. Neither of these errors was discovered nor corrected. The effect of these two errors would cause

a. 2015 net income to be understated $80,000 and December 31, 2015 retained earnings to be understated $29,000.

b. 2014 net income and December 31, 2014 retained earnings to be understated $51,000 each.

c. 2014 net income to be overstated $22,000 and 2015 net income to be understated $29,000.

d. 2015 net income and December 31, 2015 retained earnings to be understated $29,000 each.

2. Langley Company's December 31 year-end financial statements contained the following errors:

Dec. 31, 2014 Dec. 31, 2015

Ending inventory $22,500 understated $33,000 overstated

Depreciation expense 6,000 understated

An insurance premium of $54,000 was prepaid in 2014 covering the years 2014, 2015, and 2016. The prepayment was recorded with a debit to insurance expense. In addition, on December 31, 2015, fully depreciated machinery was sold for $28,500 cash, but the sale was not recorded until 2016. There were no other errors during 2015 or 2016 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, 2015?

a. Working capital overstated by $15,000

b. Working capital overstated by $4,500

c. Working capital understated by $13,500

d. Working capital understated by $36,000