Buffalo Tool Company’s December 31 year-end financial statements contained the following errors.     December 31, 2020   December 31, 2021 Ending inventory   $9,100 understated   $7,800 overstated Depreciation expense   $2,300 understated   —

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Buffalo Tool Company’s December 31 year-end financial statements contained the following errors.

   
December 31, 2020
 
December 31, 2021
Ending inventory
  $9,100 understated   $7,800 overstated
Depreciation expense
  $2,300 understated  


An insurance premium of $67,200 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 $13,700 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 of errors on net income   $Enter the total effect of errors on net income in dollars                                                               


(b) Compute the total effect of the errors on the amount of Buffalo’s working capital at December 31, 2021.

Total effect on working capital   $Enter the total effect on working capital in dollars                                                               


(c) Compute the total effect of the errors on the balance of Buffalo’s retained earnings at December 31, 2021.

Total effect on retained earnings   $Enter the total effect on retained earnings in dollars                                                               
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