Use the Following Information for Questions

Multiple Choice

Use the following information for questions.
Cheyenne Ltd.'s December 31 year-end financial statements contained the following errors: An insurance premium of $ 3,600 was prepaid in 2019 covering the calendar years 2019, 2020, and 2021. This had been debited to insurance expense. In addition, on December 31, 2020, fully depreciated machinery was sold for $ 1,900 cash, but the sale was not recorded until 2021. There were no other errors during 2020 or 2021 and no corrections have been made for any of the errors. Ignore income tax considerations.
-What is the total net effect of the errors on the amount of Cheyenne's working capital at December 31, 2020?

A) Working capital overstated by $ 1,000
B) Working capital overstated by $ 300
C) Working capital understated by $ 900
D) Working capital understated by $ 2,400