Ayayai Tool Company’s December 31 year-end financial statements contained the following errors. December 31, 2017 December...

Ayayai Tool Company’s December 31 year-end financial statements contained the following errors. December 31, 2017 December 31, 2018 Ending inventory $10,500 understated $8,200 overstated Depreciation expense $2,400 understated — An insurance premium of $69,000 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 $16,000 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.)

Compute the total effect of the errors on 2018 net income.

Compute the total effect of the errors on the amount of Ayayai’s working capital at December 31, 2018.

Compute the total effect of the errors on the balance of Ayayai’s retained earnings at December 31, 2018.

Expert Solution

ekkarill92 answered 2 years ago

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