Sage Tool Company's December 31 year-end financial statements contained the following errors. Ending inventory Depreciation expense December 31, 2020. $9.300 understated $2.400 understated December 31, 2021 $7.400 overstated An insurance premium of $60.000 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 $14.400 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. Ugnore income tax considerations) (a) Compute the total effect of the errors on 2021 net income. Total effect of errors on net income 5 13000 overstated (b) Compute the total effect of the errors on the amount of Sage's working capital at December 31, 2021
Sage Tool Company's December 31 year-end financial statements contained the following errors. Ending inventory Depreciation expense December 31, 2020. $9.300 understated $2.400 understated December 31, 2021 $7.400 overstated An insurance premium of $60.000 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 $14.400 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. Ugnore income tax considerations) (a) Compute the total effect of the errors on 2021 net income. Total effect of errors on net income 5 13000 overstated (b) Compute the total effect of the errors on the amount of Sage's working capital at December 31, 2021
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Sage Tool Company's December 31 year-end financial statements contained the following errors.
Ending inventory
Depreciation expense
December 31, 2020
$9.300 understated
$2,400 understated
December 31, 2021
Total effect of errors on net income
$7,400 overstated
An insurance premium of $60.000 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 $14.400 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.
13000
overstated
(b) Compute the total effect of the errors on the amount of Sage's working capital at December 31, 2021.
Transcribed Image Text:(a) Compute the total effect of the errors on 2021 net income.
Total effect of errors on net income
Total effect on working capital $
$
(b) Compute the total effect of the errors on the amount of Sage's working capital at December 31, 2021.
Total effect on retained earnings
13000
$
21900
overstated
(c) Compute the total effect of the errors on the balance of Sage's retained earnings at December 31, 2021.
33900
understated
understated
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