/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Q18E. Peter Henning Tool Company鈥檚 D... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 22: Q18E. (page 1312)

Peter Henning Tool Company鈥檚 December 31 year-end financial statements contained the following errors.

December 31, 2017 December 31, 2018

Ending inventory \(9,600 understated \)8,100 overstated

Depreciation expense \(2,300 understated 鈥�

An insurance premium of \)66,000 was prepaid in 2017 covering the years 2017, 2018, and 2019. The entire amount was charged to expense in 2017.

In addition, on December 31, 2018, fully depreciated machinery was sold for $15,000 cash, but the entry was not recorded until 2019.

There were no other errors during 2017 or 2018, 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 2018 net income.

(b) Compute the total effect of the errors on the amount of Henning鈥檚 working capital at December 31, 2018.

(c) Compute the total effect of the errors on the balance of Henning鈥檚 retained earnings at December 31, 2018.

Short Answer

Expert verified

The effect on net income is $24,700, the effect on working capital is $28,900, and the effect on retained earnings will be $26,600.

Step by step solution

01

Computation of part A

Effect on 2015 net income over (under) statement

Understatement of 2017 ending Inventory

9,600

Overstatement of 2018 ending Inventory

8,100

Expensing of insurance premium in 2017

22,000

Failure to record sale of the fully depreciated machine in 2018

-15,000

The total effect of errors on net income

24,700

02

Computation of part B

Effect on working capital over (under) statement

Overstatement of 2018 ending Inventory

-8,100

Expensing of insurance premium in 2017 (prepaid Insurance)

-22,000

Sale of fully depreciated machine unrecorded

-15,000

Total effect on working capital (understated)

-28,900

03

Computation of part C

Effect on retained earnings over (under) statement

Overstatement of 2018 ending inventory

8,100

Understatement of depreciation expense in 2017

2,300

Expensing of insurance premium in 2017

-22,000

Failure to record sale of a fully depreciated machine in 2018

-15,000

Total effect on retained earnings (understated)

-26,600

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Discuss briefly the three approaches that have been suggested for reporting changes in accounting principles.

Which of the following is not classified as an accounting change by IFRS?

(a) Change in accounting policy.

(b) Change in accounting estimate.

(c) Errors in financial statements.

(d) None of the above

(Error Analysis and Correcting Entry) The reported net incomes for the first 2 years of Sandra Gustafson Products, Inc., were as follows: 2017, \(147,000; 2018, \)185,000. Early in 2019, the following errors were discovered.

1. Depreciation of equipment for 2017 was overstated \(17,000.

2. Depreciation of equipment for 2018 was understated \)38,500.

3. December 31, 2017, inventory was understated \(50,000.

4. December 31, 2018, inventory was overstated \)16,200.

Instructions

Prepare the correcting entry necessary when these errors are discovered. Assume that the books are closed. (Ignore income tax considerations.)

Tedesco Company changed depreciation methods in 2017 from double-declining-balance to straight-line. Depreciation prior to 2017 under double-declining-balance was \(90,000, whereas straight-line depreciation prior to 2017 would have been \)50,000. Tedesco鈥檚 depreciable assets had a cost of \(250,000 with a \)40,000 salvage value, and an 8-year remaining useful life at the beginning of 2017. Prepare the 2017 journal entries, if any, related to Tedesco鈥檚 depreciable assets

Palmer Co. is evaluating the appropriate accounting for the following items. 1. Management has decided to switch from the FIFO inventory valuation method to the LIFO inventory valuation method for all inventories. 2. When the year-end physical inventory adjustment was made for the current year, the controller discovered that the prior year鈥檚 physical inventory sheets for an entire warehouse were mislaid and excluded from last year鈥檚 count. 3. Palmer鈥檚 Custom Division manufactures large-scale, custom-designed machinery on a contract basis. Management decided to switch from the completed-contract method to the percentage-of-completion method of accounting for longterm contracts. Identify and explain whether each of the above items is a change in accounting principle, a change in estimate, or an error
See all solutions

Recommended explanations on Business Studies Textbooks

Family Business

Read Explanation

Insurance

Read Explanation

Sales in Business

Read Explanation

Operational Management

Read Explanation

Organizational Communication

Read Explanation

Business Operations

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.