Bishop Co. began operations on January 1, 2014. Financial statements for 2014 an

Question

Bishop Co. began operations on January 1, 2014. Financial statements for 2014 and 2015 con- tained the following errors: Dec. 31, 2014 Dec. 31, 2015 Ending inventory $132,000 too high $146,000 too low Depreciation expense 84,000 too high - Insurance expense 60,000 too low 60,000 too high Prepaid insurance 60,000 too high -In addition, on December 31, 2015 fully depreciated equipment was sold for $28,800, but the sale was not recorded until 2016. No corrections have been made for any of the errors. Ignore income tax considerations. The total effect of the errors on the balance of Bishop's retained earnings at December 31, 2015 is understated by

Explanation / Answer

Therefore there is net understatement of $ 66,800

Error Retained earningsunderstated by Retained earnings overstated by $ $ Ending inventory too high 132,000 Ending inventory too low 146,000 Depreciation expense too high 84,000 Insurance expense too low 60,000 Insurance expense too high 60,000 Prepaid insurance too high 60,000 Profit on sale of equipment ignored 28,800 318,800 252,000

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