Question 28 Sarasota Tool Company\'s December 31 year-end financial statements c

Question

Question 28 Sarasota Tool Company's December 31 year-end financial statements contained the following errors December 31, 2017 $9,600 understated $2,200 understated December 31, 2018 Ending inventory Depreciation expense $8,800 overstated An insurance premium of $62,400 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 $13,900 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. (Ignore income tax considerations.) (Enter negative amounts using either a negative sign preceding the number e.g.-15,000 or parentheses e.g. (15,000 (a) Compute the total effect of the errors on 2018 net income. Total effect of errors on net income (b) Compute the total effect of the errors on the amount of Sarasota's working capital at December 31, 2018. Total effect on working capital s (c) Compute the total effect of the errors on the balance of Sarasota's retained earnings at December 31, 2018. Total effect on retained earnings

Explanation / Answer

(a) Total effect of errors on net income $25300

$9600 + 8800 + 20800* - 13900 = $25300
*($62400 / 3 = 20800)

(b) Total effect on working capital ($25900)

$8800 - 20800 - 13900 = ($25900)

(c) Total effect on retained earnings ($23700)

$8800 + 2200 - 20800 - 13900 = ($23700)

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