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

An insurance premium of $18,000 was prepaid in 2010 covering the years 2010, 2011, and 2012.The prepayment was recorded with a debit to insurance expense.In addition, on December 31, 2011, fully depreciated machinery was sold for $9,500 cash, but the sale was not recorded until 2012.There were no other errors during 2011 or 2012 and no corrections have been made for any of the errors.Ignore income tax considerations.
-Accrued salaries payable of $51,000 were not recorded at December 31, 2010.Office supplies on hand of $24,000 at December 31, 2011 were erroneously treated as expense instead of supplies inventory.Neither of these errors was discovered nor corrected.The effect of these two errors would cause

Question

Use the following information for questions.
Langley Company's December 31 year-end financial statements contained the following errors:
  
An insurance premium of $18,000 was prepaid in 2010 covering the years 2010, 2011, and 2012.The prepayment was recorded with a debit to insurance expense.In addition, on December 31, 2011, fully depreciated machinery was sold for $9,500 cash, but the sale was not recorded until 2012.There were no other errors during 2011 or 2012 and no corrections have been made for any of the errors.Ignore income tax considerations.
-Accrued salaries payable of $51,000 were not recorded at December 31, 2010.Office supplies on hand of $24,000 at December 31, 2011 were erroneously treated as expense instead of supplies inventory.Neither of these errors was discovered nor corrected.The effect of these two errors would cause

Quizplus · Accepted Answer

The accrued salaries payable of $51,000 were not recorded at December 31, 2010. This means that the expenses were understated in 2010 and the liabilities were understated in 2010. The office supplies on hand of $24,000 at December 31, 2011 were erroneously treated as expense instead of supplies inventory. This means that the expenses were overstated in 2011 and the assets were understated in 2011. The net effect of these two errors is that the net income is understated in 2011 by $24,000 and the retained earnings are understated in 2011 by $24,000.

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