Reference no: EM132805536
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.
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