Carla Tool Company’s December 31 year-end financial statements contained the following errors. December 31, 2020 December...

Carla Tool Company’s December 31 year-end financial statements contained the following errors.

	December 31, 2020	December 31, 2021
Ending inventory	$9,400 understated	$7,900 overstated
Depreciation expense	$2,200 understated	—

An insurance premium of $64,800 was prepaid in 2020 covering the years 2020, 2021, and 2022. The entire amount was charged to expense in 2020. In addition, on December 31, 2021, fully depreciated machinery was sold for $16,300 cash, but the entry was not recorded until 2022. There were no other errors during 2020 or 2021, and no corrections have been made for any of the errors. (Ignore income tax considerations.)

(a) Compute the total effect of the errors on 2021 net income.

Total effect of errors on net income

$Enter the total effect of errors on net income in dollars

understatedoverstated

(b) Compute the total effect of the errors on the amount of Carla’s working capital at December 31, 2021.

Total effect on working capital

$Enter the total effect on working capital in dollars

overstatedunderstated

(c) Compute the total effect of the errors on the balance of Carla’s retained earnings at December 31, 2021.

Total effect on retained earnings

$Enter the total effect on retained earnings in dollars

understatedoverstated

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