Exercise 22-18

Blossom Tool Companys December 31 year-end financial statements contained the following errors.

December 31, 2017

December 31, 2018

Ending inventory$9,300 understated$7,400 overstatedDepreciation expense$2,400 understated

An insurance premium of $60,000 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 $14,400 cash, but the entry was not recorded until 2019. There were no other errors during 2017 or 2018, 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 2018 net income.

Total effect of errors on net income$

(b) Compute the total effect of the errors on the amount of Blossoms working capital at December 31, 2018.

Total effect on working capital$

(c) Compute the total effect of the errors on the balance of Blossoms retained earnings at December 31, 2018.

Total effect on retained earnings$