Understatement of ending inventory 25,000 30,000 Overstatement of ending inventory 16,000 Omission of the following: Prepaid insurance 7,500 10,000 Unearned rent income 8,000 Accrued salaries expense 12,000 10,000 Accrued interest revenue 2,000 3,000 Erroneous capitalization of machinery repairs 15,000 Overstatement of machinery depreciation 1,500 1,500 Erroneous charging to expense of equipment cost 25,000 Understatement of equipment depreciation 2,500 2,500 2,500 Net income for the year 1,500,000 2,000,000 2,250,000 Retained earnings at year-end 7,500,000 8,750,000 9,250,000
Understatement of ending inventory 25,000 30,000 Overstatement of ending inventory 16,000 Omission of the following: Prepaid insurance 7,500 10,000 Unearned rent income 8,000 Accrued salaries expense 12,000 10,000 Accrued interest revenue 2,000 3,000 Erroneous capitalization of machinery repairs 15,000 Overstatement of machinery depreciation 1,500 1,500 Erroneous charging to expense of equipment cost 25,000 Understatement of equipment depreciation 2,500 2,500 2,500 Net income for the year 1,500,000 2,000,000 2,250,000 Retained earnings at year-end 7,500,000 8,750,000 9,250,000
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter6: Cost Of Goods Sold And Inventory
Section: Chapter Questions
Problem 71APSA: Effects of an Inventory Error The income statements for Graul Corporation for the 3 years ending in...
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Question
During your audit of the books of Antigua Corporation for the year ended December 31, 2021, you discovered the following errors during the years 2019, 2020 and 2021.
| Errors | 2019 | 2020 | 2021 |
| Understatement of ending inventory | 25,000 | 30,000 | |
| Overstatement of ending inventory | 16,000 | ||
| Omission of the following: | |||
| Prepaid insurance | 7,500 | 10,000 | |
| Unearned rent income | 8,000 | ||
| Accrued salaries expense | 12,000 | 10,000 | |
| Accrued interest revenue | 2,000 | 3,000 | |
| Erroneous capitalization of machinery repairs | 15,000 | ||
| Overstatement of machinery |
1,500 | 1,500 | |
| Erroneous charging to expense of equipment cost | 25,000 | ||
| Understatement of equipment depreciation | 2,500 | 2,500 | 2,500 |
| Net income for the year | 1,500,000 | 2,000,000 | 2,250,000 |
| 7,500,000 | 8,750,000 | 9,250,000 |
Machinery has an estimated useful life of 10 years while equipment is 5 years.
REQUIRED:
Compute the corrected balances of the following:
1. Net income for 2019
2. Net income for 2020
3. Net income for 2021
4. Retained Earnings as of December 31, 2019
5. Retained Earnings as of December 31, 2020
6. Retained Earnings as of December 31, 2021
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