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Compute the total effect of the errors on the balance

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Question - Error Analysis - Peter Henning Tool Company's December 31 year-end financial statements contained the following errors.

 

December 31, 2020

December 31, 2021

Ending inventory

$9,600 understated

$8,100 overstated

Depreciation expense

$2,300 understated

-

An insurance premium of $66,000 was prepaid in 2020 covering the years 2020, 2021, and 2022. The entire amount was charged to expense in 2020. In addition, on December 31, 2021, fully depreciated machinery was sold for $15,000 cash, but the entry was not recorded until 2022. There were no other errors during 2020 or 2021, and no corrections have been made for any of the errors. (Ignore income tax considerations.)

Required -

a. Compute the total effect of the errors on 2021 net income.

b. Compute the total effect of the errors on the amount of Henning's working capital at December 31, 2021.

c. Compute the total effect of the errors on the balance of Henning's retained earnings at December 31, 2021.

Reference no: EM133124624

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