Blue Tool Company's December 31 year-end financial statements contained the following errors. December 31, 2025 $8,800 understated 2,200 understated Ending inventory Depreciation expense December 31, 2026 $8,000 overstated An insurance premium of $63,300 was prepaid in 2025 covering the years 2025, 2026, and 2027. The entire amount was charged to expense in 2025. In addition, on December 31, 2026, fully depreciated machinery was sold for $16,100 cash, but the entry was not recorded until 2027. There were no other errors during 2025 or 2026, and no corrections have been made for any of the errors. (Ignore income tax considerations.)
Blue Tool Company's December 31 year-end financial statements contained the following errors. December 31, 2025 $8,800 understated 2,200 understated Ending inventory Depreciation expense December 31, 2026 $8,000 overstated An insurance premium of $63,300 was prepaid in 2025 covering the years 2025, 2026, and 2027. The entire amount was charged to expense in 2025. In addition, on December 31, 2026, fully depreciated machinery was sold for $16,100 cash, but the entry was not recorded until 2027. There were no other errors during 2025 or 2026, and no corrections have been made for any of the errors. (Ignore income tax considerations.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:(a) Compute the total effect of the errors on 2026 net income.
b) Compute the total effect of the errors on the amount of Henning's working capital at December
31, 2026.
(c) Compute the total effect of the errors on the balance of Henning's retained earnings at
December
31, 2026.
Transcribed Image Text:Blue Tool Company's December 31 year-end financial statements contained the following errors.
December 31, 2025
$8,800 understated
2,200 understated
Ending inventory
Depreciation expense
December 31, 2026
$8,000 overstated
An insurance premium of $63,300 was prepaid in 2025 covering the years 2025, 2026, and 2027. The entire amount was charged to
expense in 2025. In addition, on December 31, 2026, fully depreciated machinery was sold for $16,100 cash, but the entry was not
recorded until 2027. There were no other errors during 2025 or 2026, and no corrections have been made for any of the errors.
(Ignore income tax considerations.)
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