Exhibit 22-4 Barbara Company's Year-End December 31, 2014, Financial Statements

Exhibit 22-4 Barbara Company's year-end December 31, 2014, financial statements contained the following errors:
Ending inventory on December 31, 2014, was overstated by $75,000.
Depreciation expense was understated by $7,000.
A two-year insurance policy for 2014 and 2015 in the amount of $14,000 was entirely expensed in 2014.
Investments in common stock of other companies were sold in 2014 at a gain of $10,000, but the sale was not recorded until 2015.
-Refer to Exhibit 22-4. What is the effect of the above errors on 2014 net income?

A) Net income is understated by $65,000.
B) Net income is overstated by $92,000.
C) Net income is overstated by $58,000.
D) Net income is overstated by $65,000.

Correct Answer:

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