You are an audit senior assigned to the 2020 audit of PCH Enterprises. As part of the final audit procedures, your audit manager assigns you to the task of creating the aggregate likely misstatement work paper based on the following journal entries to correct misstatements found during the audit. (NOTE: These balances were above your performance materiality thresholds, but below tolerable misstatement and as such have not been corrected in the financial statements). The audit manager wants to determine the aggregate impact of the misstatements (that these journal entries would correct) to the financial statements and whether the misstatements need to be corrected in the financial statements. Materiality for the client is $1,000,000.

Uncorrected misstatements noted from the audit:

Journal Entry 1 (W/P Ref 1520):

Purpose: To record a reserve for slow or obsolete inventory, which was not recorded by the client.

Dr. Inventory Writeoff Expense$32,220

Cr. Inventory$32,220

Journal Entry 2 (W/P Ref 1601):

Purpose: To correctly record and reduce depreciation expense wrongly calculated by the client.

Dr. Accumulated Depreciation$41,100

Cr. Depreciation Expense$41,100

(1a) Please prepare the aggregate likely misstatement work paper to show the impact of these mistakes to the financial statements as a whole. (NOTE: Focus on the numerical implications. No need to distinguish between current and non-current in this example as all balances are current. Also, focus only on pre-income tax expense and do not include a column for income tax expense). Assume the final balances from the trial balance are as follows:

Assets $12,500,000

Liabilities 8,000,000

Stockholder's Equity 4,500,000

Pre-Tax Income 750,000

(1b) Based on your analysis in the workpaper of (1), are these misstatements material in aggregate? Do these misstatements need to be recorded in the financial statements?