mstoutt
Nov 22, 2009, 01:22 PM
I am having trouble solving this problem... I tried a few answers but they are all wrong. Any help in directing me in the direction of solving the problem corrctly is greatly appreciated.
Peter Henning Tool Company's December 31 year-end financial statements contained the following errors.
December 31, 2007 December 31, 2008
Ending Inventory $9,700 understated $8,600 overstated
Depreciation Expense $2,300 understated —
An insurance premium of $69,000 was prepaid in 2007 covering the years 2007, 2008, and 2009. The entire amount was charged to expense in 2007. In addition, on December 31, 2008, fully depreciated machinery was sold for $15,000 cash, but the entry was not recorded until 2009. There were no other errors during 2007 or 2008, and no corrections have been made for any of the errors. (Ignore income tax considerations.)
Instructions
(a) Compute the total effect of the errors on 2008 net income.
$ 31,000 (BUT THIS ANSWER IS WRONG)
(b) Compute the total effect of the errors on the amount of Henning's working capital at December 31, 2008.
$ 1,100(ANSWER IS INCORRECT)
(c) Compute the total effect of the errors on the balance of Henning's retained earnings at December 31, 2008.
$ 20,700(INCORRECT ANSWER)
Peter Henning Tool Company's December 31 year-end financial statements contained the following errors.
December 31, 2007 December 31, 2008
Ending Inventory $9,700 understated $8,600 overstated
Depreciation Expense $2,300 understated —
An insurance premium of $69,000 was prepaid in 2007 covering the years 2007, 2008, and 2009. The entire amount was charged to expense in 2007. In addition, on December 31, 2008, fully depreciated machinery was sold for $15,000 cash, but the entry was not recorded until 2009. There were no other errors during 2007 or 2008, and no corrections have been made for any of the errors. (Ignore income tax considerations.)
Instructions
(a) Compute the total effect of the errors on 2008 net income.
$ 31,000 (BUT THIS ANSWER IS WRONG)
(b) Compute the total effect of the errors on the amount of Henning's working capital at December 31, 2008.
$ 1,100(ANSWER IS INCORRECT)
(c) Compute the total effect of the errors on the balance of Henning's retained earnings at December 31, 2008.
$ 20,700(INCORRECT ANSWER)