Transcribed image text: PROBLEM NO. 2 Comprehensive Youhave beenaskedbyaclienttoauditthefinancialstatementsofHalf-Hearted Company forthefirsttime. In examining the books, you found out that certain adjustments had been overlooked at the end of 2015 and 2016. You also discovered that other items had been improperly recorded. These omissions and other failures for each year are summarized below: 2015 210,000 overstated 2016 8,000 understated 20,000 40,000 20,000 70,000 Merchandise inventory, end Advances to supplier were recorded as purchases but the merchandise was receivedin the followingvear: Advances from customers recorded as sales but the goods were deliveredin the followingyear: Improvements on building had been charged to expense on January 1, 2015. Improvements have a life of years. On January 1, 2015, an equipment costing 340,000 was sold for 320,000. At the date of sale, the equipment had an accumulated depreciation of 915,000. The cash received was recordedasotherincomein2015. 100,000 Questions: Based on the above and the result of your audit answer the following: 36. Whatisthe totaleffectofthe errorson the 2015 netincome? a. Understatedby45,000 c. Overstated by 115,000 b. Understatedby25,000 d. Understated by 5.000 37. Whatis the totaleffectofthe errors on the 2016 netincome? a. Overstatedby 32,000 c. Overstated by 68,000 b. Overstatedby8,000 d.Overstatedby 38.000 38. Whatis the total effect of the errors on the company's working capital at December 31, 2016? a. Overstatedby22,000 c. Overstated by 70,000 b. Understatedby48,000 d. Overstated by 30.000 39. Whatis the total effectofthe errors on the balance of the company's retained earnings at December 31. 2016? a. Understatedby13,000 c. Overstated by 183,000 b. Understatedby 17.000 d. Overstated by 33.000 40. Necessaryadjustingjournalentries at December31,2016wouldrequireanet 2. DebittoR/E45,000 c. Credit to Purchases 20.000 b. Creditto Sales50,000 d. Debit to Equipment40,000