41-6 (AICPA Adapted) statements: Glory Company reported the following errors in the financ Ending inventory Depreciation 2018 200,000 under 50,000 under 2019 300,000 over An insurance premium of P150,000 was prepaid in 2018 to cover 2018, 2019 and 2020. The entire amount was charged to expense in 2018. On December 31, 2019, fully depreciated machinery was sold for P250,000 cash but the sale was not recorded until 2020. There were no other errors during 2018 and 2019 and no corrections have been made for any of the errors. What is pretax net effect of the errors on retained earnings on December 31, 2019? a. 300,000 overstated b. 250,000 understated Pro Crescendo ( Ending inve Rent expe 1. If non would a. b. PROD C. d. 2. W 3 2 C. 50,000 overstated d. 50,000 understated Solution 41-6 Answer c 2018 ending inventory under Sc 2018 2019 200,000 (200,000) C 2019 ending inventory over (300,000) - 2018 depreciation under E (50,000) Insurance premium 100,000 (50,000) Unrecorded gain on sale of machinery 250,000 Net correction to income 250,000 (300,000) Net correction to 2018 net income 250,000 Net correction to 2019 net income (300,000) Net correction to retained earnings (50,000) The net income of 2018 was understated by P250,000 and the net income of 2019 was overstated by P300,000. Accordingly, the pretax net effect is overstatement of retained earnings of P50,000. 586