Rodney Company's December 31 year-end financial statements contained the following errors:

An insurance premium of $3,600 was prepaid in 2010 covering the years 2010, 2011, and 2012. The entire amount was charged to expense in 2010. In addition, on December 31, 2011, fully depreciated machinery was sold for $6,400 cash, but the sale was not recorded until 2012. There were no other errors during 2010 or 2011, and no corrections have been made for any of the errors. Ignore income tax considerations. What is the total effect of the errors on 2011 net income?
A) Net income is understated by $12,800.
B) Net income is overstated by $3,600.
C) Net income is understated by $1,600.
D) Net income is overstated by $2,400.

Question

Rodney Company's December 31 year-end financial statements contained the following errors:

An insurance premium of $3,600 was prepaid in 2010 covering the years 2010, 2011, and 2012. The entire amount was charged to expense in 2010. In addition, on December 31, 2011, fully depreciated machinery was sold for $6,400 cash, but the sale was not recorded until 2012. There were no other errors during 2010 or 2011, and no corrections have been made for any of the errors. Ignore income tax considerations. What is the total effect of the errors on 2011 net income?
A) Net income is understated by $12,800. 
B) Net income is overstated by $3,600. 
C) Net income is understated by $1,600. 
D) Net income is overstated by $2,400.

Quizplus · Accepted Answer

The Answer of Rodney Company's December 31 year-end financial statements contained the following errors:

An insurance premium of $3,600 was prepaid in 2010 covering the years 2010, 2011, and 2012. The entire amount was charged to expense in 2010. In addition, on December 31, 2011, fully depreciated machinery was sold for $6,400 cash, but the sale was not recorded until 2012. There were no other errors during 2010 or 2011, and no corrections have been made for any of the errors. Ignore income tax considerations. What is the total effect of the errors on 2011 net income?
A) Net income is understated by $12,800. 
B) Net income is overstated by $3,600. 
C) Net income is understated by $1,600. 
D) Net income is overstated by $2,400.

Rodney Company's December 31 Year-End Financial Statements Contained the Following