December 31 2019 2020 Ending inventory $16,000 Understated $15,000 Overstated $10,000 Understated Insurance expense $10,000 Overstated Prepaid insurance $10,000 Understated
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Shannon Corporation began operations on January 1, 2019. Financial
statements for the years ended December 31, 2019 and 2020, contained
the following errors:
In addition, on December 31, 2020, fully
for $10,800 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.
Refer to the information for Shannon Corporation above. Ignoring
income taxes, what is the total effect of the errors 011 2020 net income?
a. net income understated by $1,800
b. net income overstated by $5,800
c. net income overstated by $11,000
net income overstated by $14,200
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