Mystical Corporation found the subsequent errors in their year-end financial statements:
As of Dec. 2012 As of Dec. 2013
Ending Inventory $32,000 understated $46,000 overstated
Depreciation Exp. $7,000 understated
On 31st December, 2013, a fully depreciated machine was sold for $35,000 but the sale was not recorded until January 15, 2014 when the cash was received. In 2012, a three-year insurance premium was prepaid for $45,000 of which the entire amount was expensed in the first year.
There were no other errors or corrections. Ignore any tax considerations.
Evaluate the total net effect of errors on Mystical's 2013 net income?
Working capital overstated by $31,000
Working capital overstated by $11,000
Working capital understated by $4,000
Working capital understated by $36,000