Reference no: EM132663487

ABC Company began operations on January 1, 2018. Financial statements for the years ended December 31, 2018 and 2019 contained the following errors:

                                                   2018                                         2019
Ending inventory          320,000 understated                300,000 overstated
Depreciation expense       120,000 understated
Insurance expense            200,000 overstated               200,000 understated
Prepaid Insurance                    200,000 understated

In addition, on December 31, 2019, fully depreciated machinery was sold for P220,000 cash but the sale was not recorded until 2020. No corrections have been made for any of the errors. Ignore income tax.

Problem 1: What is the effect of the error on 2019 net income?

Problem 2: What is the total effect of the errors on the amount of working capital at December 31, 2019.

Problem 3: What is the total effect of the errors on the balance of retained earnings at December 31, 2019.