In reviewing the accounts of Tumblers Co., you discovered that a credit of $1,000 to prepaid insurance was wrongly credited to accounts receivable, and an $800 prepayment was remitted for a radio advertisement that was not posted. Which of the following statements reflects the effect of the errors?

Multiple Choice

• Total assets is overstated by $500 and owner's equity is overstated by $500.

• Total assets is understated by $200 and owner's equity is understated by $200.

• There is no overstatement or understatement in the total assets and the owner's equity.

• Total assets is overstated by $300 and owner's equity is overstated by $300.

• Total assets is understated by $1,800 and owner's equity is understated by $1000.