Homework Answers
Ans:
A). Computation of effects of errors in 2021 income
| Particulars | Amount($) |
| Effect of the errors on 2021 income | |
| Understatement of 2020 ending inventory | $10,100 |
| Overstatement of 2021 ending inventory | $7,700 |
| Expensing of insurance premium in 2020 (68,100/3) | $22,700 |
| Failure to record the sale of fully depreciated machine in 2021 | (13,900) |
| Total effects of error on the net income (overstated) | 26,600 |
B). Computation of total effects on working capital on December 31,2021.
| Particulars | Amount($) |
| Total effects of errors on working capital | |
| overstatement of 2021 ending inventory | 7,700 |
| Expensing of insurance premium in 2020 | (22,700) |
| Failure to record the sale of fully depreciated machine in 2021 | (13,900) |
| Total effect on working capital(understated) | (28,900) |
C). Computation of total effects on retained earnings @ December 31,2021
| Particulars | Amount($) |
| Overstatement of 2021 ending inventory | 7,700 |
| Understatement of depreciation expense in 2020 | 2,400 |
| Expensing of insurance premium on 2020 | (22,700) |
| Failure to record the sale of fully depreciated machine in 2021 | (13,900) |
| Total effects on retained earnings | (26,500) |
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—
An insurance premium of $69,600 was prepaid in 2017 covering the
years 2017, 2018, and 2019. The entire amount was charged to
expense in 2017. In addition, on December 31, 2018, fully
depreciated machinery was sold for $15,900 cash, but the entry was
not recorded until 2019. There were no other...
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