Exercise 22-18

Jasper Corp December 31 year-end financial statements contained the following errors.

		December 31, 2017		December 31, 2018
Ending inventory		$9,600 understated		$8,100 overstated
Depreciation expense		$2,300 understated

An insurance premium of $66,000 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 $14,800 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, Jasper follows ASPE

1. Compute the total effect of the errors on 2018 net income.
2. Compute the total effect of the errors on the amount of Bonitas working capital at December 31, 2018.
3. Compute the total effect of the errors on the balance of Bonitas retained earnings at December 31, 2018.
4. Assume that the company has retained earnings on Jan 1, 2017 and 2018 of 1,250,000 and 1,607,000, respectively net income for 2017 and 2018 of 422,000 and 375,000 respectively and cash dividends declared for 2017 and 2018 of 65,0000 and 45,000, respectively, before adjustment for the above items. Prepare a revised statement of retained earnings for 2017 and 2018.
5. Outline the accounting treatment required by ASPE in this situation and explain how these requirements help investors.