Emerson Tool plc’s December 31 year-end financial statements contained the following errors.

An insurance premium of £60,000 was prepaid in 2021 covering the years 2021, 2022, and 2023. The entire amount was charged to expense in 2021. In addition, on December 31, 2022, fully depreciated machinery was sold for £15,000 cash, but the entry was not recorded until 2023. There were no other errors during 2021 or 2022, and no corrections have been made for any of the errors. (Ignore income tax considerations.)

Instructions

a. Compute the total effect of the errors on 2022 net income.

b. Compute the total effect of the errors on the amount of Emerson’s working capital at December 31, 2022.

c. Compute the total effect of the errors on the balance of Emerson’s retained earnings at December 31, 2022.

Transcribed Image Text:

December 31, 2021 December 31, 2022 Ending inventory £9,600 understated £7,100 overstated Depreciation expense £2,300 understated