Question
Teal Tool Companys December 31 year-end financial statements contained the following errors. December 31, 2020 December 31, 2021 Ending inventory $10,600 understated $7,800 overstated Depreciation
Teal Tool Companys December 31 year-end financial statements contained the following errors.
December 31, 2020
December 31, 2021
Ending inventory
$10,600 understated $7,800 overstated
Depreciation expense
$2,400 understated
An insurance premium of $70,200 was prepaid in 2020 covering the years 2020, 2021, and 2022. The entire amount was charged to expense in 2020. In addition, on December 31, 2021, fully depreciated machinery was sold for $14,400 cash, but the entry was not recorded until 2022. There were no other errors during 2020 or 2021, and no corrections have been made for any of the errors. (Ignore income tax considerations.) (a) Compute the total effect of the errors on 2021 net income.
(b) Compute the total effect of the errors on the amount of Teals working capital at December 31, 2021.
(c) Compute the total effect of the errors on the balance of Teals retained earnings at December 31, 2021.
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