Question 5. 5 (TCO E) Mystical Corporation found the following errors in their year-end financial statements: As of Dec. 2012 As of Dec. 2013 Ending Inventory $32,000 understated $46,000 overstated Depreciation Exp. $7,000 understated On December 31, 2013, a fully depreciated machine was sold for $35,000 but the sale was not recorded until January 15, 2014 when the cash was received. In 2012, a three-year insurance premium was prepaid for $45,000 of which the entire amount was expensed in the first year. There were no other errors or corrections. Ignore any tax considerations. What is the total net effect of errors on Mystical's 2013 working capital? (Points : 5)

Working capital overstated by $31,000

Working capital overstated by $11,000

Working capital understated by $4,000

Working capital understated by $36,000

Answer: See Chapter 22. 46,000 - 15,000 - 35,000 = -4,000

*I am putting the question on the site because I found the question earlier with the wrong answer - I have flagged the wrong answer one, however, I want to put the question with the answer so that other will get the right answer and be able to understand how to get the right answer. Please post for others. The answer is Working capital understated by $4,000. Thank you.