Teal Tool Company's December 31 year-end financial statements contained the following errors.Ending inventoryDepreciation expenseDecember 31, 2020$10,500 understated$2,400 understatedTotal effect of errors on net income $An insurance premium of $69,000 was prepaid in 2020 covering the years 2020, 2021, and 2022. The entire amount was charged toexpense in 2020. In addition, on December 31, 2021, fully depreciated machinery was sold for $16,000 cash, but the entry was notrecorded 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.Total effect on working capital $December 31, 2021understatedoverstated(b) Compute the total effect of the errors on the amount of Teal's working capital at December 31, 2021.$8,200 overstatedTotal effect on retained earnings(c) Compute the total effect of the errors on the balance of Teal's retained earnings at December 31, 2021.$SUPPO

Accounting errors occur at the time of recording data by accounting professionals. This does not…

Answered: (a) Compute the total effect of the…

Business

Accounting

(a) Compute the total effect of the errors on 2021 net income.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Teal Tool Company's December 31 year-end financial statements contained the following errors.
Ending inventory
Depreciation expense
December 31, 2020
$10,500 understated
$2,400 understated
Total effect of errors on net income $
An insurance premium of $69,000 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 $16,000 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.
Total effect on working capital $
December 31, 2021
understated
overstated
(b) Compute the total effect of the errors on the amount of Teal's working capital at December 31, 2021.
$8,200 overstated
Total effect on retained earnings
(c) Compute the total effect of the errors on the balance of Teal's retained earnings at December 31, 2021.
$
SUPPO

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