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What is the total net effect of the errors

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

A three-year insurance premium of $7,200 was prepaid in 2024 covering the years 2024- 2026. The prepayment was recorded with a debit to insurance expense. In addition, on December 31, 2024, fully depreciated machinery was sold for $3,800 cash, but the sale was not recorded until 2025. No corrections have been made for any of the errors.

Required - What is the total net effect of the errors on Arnold's 2024 net income?

a. Net income understated by $6,200

b. Net income understated by $1,400

c. Net income overstated by $1,000

d. Net income understated by $8,600

e. Net income understated by $1,000

Reference no: EM132617342

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