Use the following information for the following questions:
Giselle Ltd. is a calendar-year corporation. Its financial statements for the years 2020 and 2019 contained errors as follows:
$$\begin{array} { l l l }
&2020&2019\
\text { Ending inventory } & \$ 2,000 \text { overstated } & \$ 3,000 \text { overtated } \
\text { Depreciation expense } & \$ 6,000 \text { understated } & \$ 12,000 \text { overstated }
\end{array}$$
-Assume that no correcting entries were made at December 31, 2019, or December 31, 2020 and that no additional errors occurred in 2021. Ignoring income taxes, by how much will working capital, at December 31, 2021 be overstated or understated?
A) $0
B) $4,000 overstated
C) $4,000 understated
D) $6,000 understated

Question

Use the following information for the following  questions:
Giselle Ltd. is a calendar-year corporation. Its financial statements for the years 2020 and 2019 contained errors as follows:
 $$\begin{array} { l l l } 
&2020&2019\
\text { Ending inventory } & \$ 2,000 \text { overstated } & \$ 3,000 \text { overtated } \
\text { Depreciation expense } & \$ 6,000 \text { understated } & \$ 12,000 \text { overstated }
\end{array}$$
-Assume that no correcting entries were made at December 31, 2019, or December 31, 2020 and that no additional errors occurred in 2021. Ignoring income taxes, by how much will working capital, at December 31, 2021 be overstated or understated?
A) $0
B) $4,000 overstated
C) $4,000 understated
D) $6,000 understated

Quizplus · Accepted Answer

The errors in ending inventory and depreciation expense do not affect working capital directly. Working capital is current assets minus current liabilities, and these errors have been self-corrected over time as they affect prior periods.

Use the Following Information for the Following Questions: Giselle

Use the Following Information for the Following Questions:
Giselle