Question
ones Co. began operations on January 1, 2019. Financial statements for the years ended December 31, 2019, and 2020 contained the following: 2019 2020 Ending
ones Co. began operations on January 1, 2019. Financial statements for the years ended December 31, 2019, and 2020 contained the following:
2019 | 2020 | |
Ending Inventory | $12,000 understated | $14,000 overstated |
Insurance expense | $8,000 overstated | $8,000 understated |
Prepaid insurance | $10,000 understated |
In addition, on December 31, 2020, a fully depreciated piece of equipment was sold for $9,500 cash, but the sale was not recorded until 2021. There were no other errors during 2019 or 2020, and no corrections have been made for any of the errors. Ignoring income taxes, what is the total effect of the errors on the amount of working capital (current assets minus current liabilities) at December 31, 2020?
a.Working capital is overstated by $4,500.
b.Working capital is understated by $4,500.
c.Working capital is understated by $12,500.
d.Working capital is overstated by $12,500
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