3. At the beginning of 2017, a machine was purchased for a total cost of $50,000. The machine has no salvage value and has a life of 10 years. The bookkeeper accidentally expensed the entire cost of the machine in 2017. Free company normally uses straight line depreciation method.

NET INCOME FOR PERIOD ENDING 12/31/17______________________________________

RETAINED EARNINGS AS OF 12/31/2017_____________________________________

WORKING CAPITAL AS OF 12/31/2017______________________________________

NET INCOME FOR THE PERIOD ENDING 12/31/2018______________________________

RETAINED EARNINGS AS OF 12/31/2018____________________________________

Part 1: Analysis of Errors A. Error Analysis Early in 2018, Free Company was acquired by a new owner who discovered errors in the accounting records. The new owner would like you to analyze the crror described and then determine the impact on the different accounting items listed. Each error should be analvzed separatelv. Be sure to indicate the Samount and whether or not the error caused the items to be overstated (OS) or understated (US) or No Effect (NE). 1. December 31, 2017, ending inventory was overstated by $50,000. Analysis: Net Income for the period ending 12/31/2017, Retained Earnings as of 12/31/2017 Working Capital as of 12/31/2017 Net Income for the period ending 12/31/2018 Retained Earnings as of 12/31/2018 , $30,000 of cash collected in advance for future services was included in end of 2017 2. At the Service Revenue for the period ending 12/31/2017. The services will be performed equally in 2018 and 2019. Analysis: Net Income for the period ending 12/31/2017 Retained Earnings as of 12/31/2017_ Working Capital as of 12/31/2017 Net Income for the period ending 12/31/2018 Retained Earnings as of 12/31/2018