Exercise 22-18 Waterway Tool Company\'s December 31 year-end tnanoal statements
ID: 2533780 • Letter: E
Question
Exercise 22-18 Waterway Tool Company's December 31 year-end tnanoal statements contained the tollowing errors. December 31, 2017 December 31, 2018 Ending iventory $8,900 understated 9,200 overstated Deprecation expense 2,400 understated as prepaidis during 2017 or In addiinEnter of $70,500 w An nsurance premium as pre did in 2017 covering the years 2017 2018, and 2019. The entire an ount was charged o expense n 2017 n addition on December 31, 2019 ul Y de rec d ed machinery was sald for $15,800 cash but he em ty was not recorded unbl 2019. There were no other errors dunng 2017 or 2018, and no oorrect ons have been made or any ot the emor Ignore income tax considerations. Enter negative amounts using either ? negati number e 15,000 or parentheses eg. (S,000).) ve sign preceding the (a) Compute the total effect of the errors on 2016 net income. Total effect of errars on net income t (b) Campute the total effact af the errors on the amount of Waterway's warkong capital at Docember 31, 2018. Total offect on working capit (c) Compute the tatal effect of the errors on the balance of Waterway's retained carnings at December 31, 2018. Total effect on retained earingsExplanation / Answer
Effect on Net Income (a) Under statement of inventory of Dec 31, 2017 8900 Over statement of inventory of Dec 31, 2018 8200 Under statement of insurance expense for 2018 = 70500/3 = 23500 Understatement of depreciation expense for 2017 0 Total effect of errors on net income 40600 (Over-statement) (b) Under statement of inventory of Dec 31, 2017 0 Over statement of inventory of Dec 31, 2018 8200 Prepaid insurance = 70500/3 = 23500 of 2019 = -23500 Understatement of depreciation expense for 2017 0 Total effect on working capital -15300 (Under-statement) (c) Under statement of inventory of Dec 31, 2017 0 Over statement of inventory of Dec 31, 2018 8200 Insurance expenses for 2 years = 23500*2 = 47000 Understatement of depreciation expense for 2017 2400 Total effect on retained earnings 57600 (Over statement)
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