Exhibit 22-4 Barbara Company's year-end December 31, 2014, financial statements contained the following errors:
Ending inventory on December 31, 2014, was overstated by $75,000.
Depreciation expense was understated by $7,000.
A two-year insurance policy for 2014 and 2015 in the amount of $14,000 was entirely expensed in 2014.
Investments in common stock of other companies were sold in 2014 at a gain of $10,000, but the sale was not recorded until 2015.
-Refer to Exhibit 22-4. The effect of the above errors on the December 31, 2014, reported assets of Barbara is that assets are

Question

Exhibit 22-4 Barbara Company's year-end December 31, 2014, financial statements contained the following errors: 
Ending inventory on December 31, 2014, was overstated by $75,000.
Depreciation expense was understated by $7,000.
A two-year insurance policy for 2014 and 2015 in the amount of $14,000 was entirely expensed in 2014.
Investments in common stock of other companies were sold in 2014 at a gain of $10,000, but the sale was not recorded until 2015.
-Refer to Exhibit 22-4. The effect of the above errors on the December 31, 2014, reported assets of Barbara is that assets are

Quizplus · Accepted Answer

The overstated ending inventory by $75,000 would cause an overstatement of total assets by $75,000. The understated depreciation expense by $7,000 would cause an overstatement of net income by $7,000 and retained earnings by $7,000. The entire expense of the two-year insurance policy of $14,000 in 2014 overstated expenses and understated net income and retained earnings by $14,000. The sale of investments in common stock at a gain of $10,000 in 2014, but not recorded until 2015, understates net income and retained earnings by $10,000. Thus, the total effect of the errors on assets is an overstatement of $75,000 - $14,000 + $10,000 = $71,000. Therefore, the correct answer is D) overstated by $65,000.

Exhibit 22-4 Barbara Company's Year-End December 31, 2014, Financial Statements