AC 302 WEEK 8 Exercise 22 Question 18

AC 302 WEEK 8 Exercise 22 Question 18
 
 	Your answer is correct
 	 
Peter Henning Tool Company- December 31 year-end financial statements contained the following errors.
		December 31, 2014		December 31, 2015
Ending inventory		$9,708 understated		$6,954 overstated
Depreciation expense		$2,662 understated		

An insurance premium of $59,670 was prepaid in 2014 covering the years 2014, 2015, and 2016. The entire amount was charged to expense in 2014. In addition, on December 31, 2015, fully depreciated machinery was sold for $11,370 cash, but the entry was not recorded until 2016. There were no other errors during 2014 or 2015, and no corrections have been made for any of the errors. (Ignore income tax considerations.) (Enter negative amounts using either a negative sign preceding the number e.g. -15,000 or parentheses e.g. (15,000).)

(a) Compute the total effect of the errors on 2015 net income.
Total effect of errors on net income		$  


(b) Compute the total effect of the errors on the amount of Henning- working capital at December 31, 2015.
Total effect on working capital		$  


(c) Compute the total effect of the errors on the balance of Henning- retained earnings at December 31, 2015.
Total effect on retained earnings		$  

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Exercise 22-18
(a) Effect of errors on 2015 net income: $25,182 overstatement
		Effect on 2015 net income
over (under) statement
Understatement of 2014 ending inventory			
Overstatement of 2015 ending inventory		
Expensing of insurance premium in 2014 		
Failure to record sale of fully depreciated machine in 2015		
Total effect of errors on net income (overstated)			 

(b) Effect of errors on working capital: $24,306 understatement
		Effect on working capital
over (under) statement
Overstatement of 2015 ending inventory		
Expensing of insurance premium in 2014 (prepaid insurance)		
Sale of fully depreciated machine unrecorded		
Total effect on working capital (understated)		

(c) Effect of errors on retained earnings: $21,644 understatement
		Effect on retained earnings
over (under) statement
Overstatement of 2015 ending inventory		
Understatement of depreciation expense in 2014		,
Expensing of insurance premium in 2014		
Failure to record sale of fully depreciated machine in 2015		
Total effect on retained earnings (understated)