Question
Sandhill Co. began operations on January 1, 2020. Financial statements for 2020 and 2021 contained the following errors: Dec. 31, 2020 Dec. 31, 2021 Ending
Sandhill Co. began operations on January 1, 2020. Financial statements for 2020 and 2021 contained the following errors: Dec. 31, 2020 Dec. 31, 2021 Ending inventory $178000 overstated $199000 understated Depreciation expense 122000 overstated - Insurance expense 86000 understated 86000 overstated Prepaid insurance 86000 overstated - In addition, on December 31, 2021 fully depreciated equipment was sold for $39200 but the sale was not recorded until 2022. No corrections have been made for any of the errors. Ignore income tax considerations. The total effect of the errors on Sandhill's 2021 net income is
a. understated by $324200.
b. overstated by $159800.
c. overstated by $337800.
d. understated by $502200.
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