Kimberlay Corporation found the following errors in their year-end financial statements.
As of Dec. 2014 As of Dec. 2015
Ending Inventory $2,000 overstated $8,000 overstated
Depreciation Exp. $1,000 understated
On December 31, 2015, a machine with a book value of $40,000 was sold for $55,000 but the sale was not recorded until January 15, 2016 when the cash was received. In 2014, a three-year insurance premium was prepaid for $12,000, of which the entire amount was expensed in the first year. There were no other errors or corrections. Ignore any tax considerations. What is the total net effect of errors on Mystical's 2015 net income?
Net income understated by $20,000
Net income overstated by $7,000
Net income understated by $5,000
Net income understated by $9,000