You are an experienced staff accountant with Hodges, Jones & Gentry (the Firm) and have been assigned to work on the audit of RB Johnson Electric Company (the Company) as of and for the year ended December 31, 2022. The Company, which is engaged in electrical construction, has been a long-time client of the Firm and operates as an S Corporation.

This is a relatively small entity, and the entire audit will be done by you and the engagement senior, Adam Sylvia. Adam is an up and coming professional in the Firm and this is your first engagement working with him. One of your colleagues has worked with Adam before and she has told you that Adam is very good technically but has tendency to wait until the last minute to raise issues and to review work performed by his staff.

You are in the process of working with Adam to finalize the engagement. One of the items left to complete is the evaluation of misstatements. Adam has a practice development class today and by email early this morning he asked you to prepare the documentation and signoff the audit program steps for this final procedure. In a follow up text on his way to his meeting (which now sounds a little more like a golf tournament) Adam tells you to just "do what was done last year".

You are a little bit uncomfortable with this assignment and think it is something he should do, but you want to make a positive impression and plan to give it your best. After some looking you are able to locate his listing of unrecorded adjustments. This listing has a notation that tolerable misstatement is $125,000. The Company's DRAFT balance sheet and income statement and Adam's listing of unrecorded misstatements follows.

Additional Information

The Company's long-term debt agreement requires a current ratio of not less than 1:00 to 1:00.

All of the uncorrected misstatements are known misstatements and none are projections.

Management of the Company is in agreement with all of the unrecorded adjustments.

Required:

What would be the dollar amount of the impact of the unrecorded adjustments on the Company's 2022 income statement? What is the impact of the misstatements on the Company's equity?

Given that the last uncorrected adjustment is only a misclassification and does not impact the Company's income statement or equity, is it necessary for this uncorrected misstatement to be considered in your final evaluation?