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Six Above Company’s December 31year-end financial statements contained the following errors.

December 31, 2013 December 31, 2014

Ending inventory $15,600overstated $36,000overstated

Depreciation expense $21,500understated —

Rent of $165,000 was prepaid in 2014 covering the 12-monthperiod beginning July 1, 2014. The entire

amount was charged to expense in 2014. In addition, on December31, 2014, vacant land was sold for

$65,000 cash ($5,000 cost), but the entry was not recorded until2015. There were no other errors during

2013 or 2014, and no corrections have been made for any of theerrors. (Ignore income tax

considerations.)7

Instructions

(a) Compute the total effect of the errors on2015 net income.

(b) Compute the total effect of the errors onthe amount of Six Above Company’s working capital at

December 31, 2015.

(c) Compute the total effect of the errors onthe balance of Six Above Company’s retained earnings at

December 31, 2015.

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Deanna Hettinger
Deanna HettingerLv2
28 Sep 2019

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Langley Company's December 31 year-end financial statementscontained the following errors: Dec. 31, 2014 Dec. 31, 2015 Endinginventory $22,500 understated $33,000 overstated Depreciationexpense 6,000 understated An insurance premium of $54,000 wasprepaid in 2014 covering the years 2014, 2015, and 2016. Theprepayment was recorded with a debit to insurance expense. Inaddition, on December 31, 2015, fully depreciated machinery wassold for $28,500 cash, but the sale was not recorded until 2016.There were no other errors during 2015 or 2016 and no correctionshave been made for any of the errors. Ignore income taxconsiderations. What is the total net effect of the errors onLangley's 2015 net income? What is the total net effect of theerrors on the amount of Langley's working capital at December 31,2015? What is the total effect of the errors on the balance ofLangley's retained earnings at December 31, 2015?

Question 5. 5. (TCO E) Mystical Corporationfound the following errors in their year-end financialstatements:
As of Dec.2012 As of Dec. 2013
EndingInventory $32,000understated $46,000 overstated
Depreciation Exp. $7,000 understated
On December 31, 2013, a fully depreciated machine was sold for$35,000 but the sale was not recorded until January 15, 2014 whenthe cash was received. In 2012, a three-year insurance premium wasprepaid for $45,000 of which the entire amount was expensed in thefirstyear.
There were no other errors or corrections. Ignore any taxconsiderations.
What is the total net effect of errors on Mystical's 2013 workingcapital? (Points : 5)

Working capital overstatedby $31,000
Working capital overstated by$11,000
Working capital understated by$4,000
Working capital understated by$36,000

Question 4. 4. (TCO E) As of January 1, 2011,Survival Industries, Inc. purchased a boat at a cost of$360,000.
When purchased, the company was using the double-decliningdepreciation method.
Key info on the asset at time of purchase is thefollowing.
Estimated useful life is 6 years.
Residual Value is $0.
At the beginning of 2014, the CFO decided to change tostraight-line depreciationmethod.
Compute the depreciation expense for 2014. (Points : 5)

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Question 5. 5. (TCO E) Mystical Corporationfound the following errors in their year-end financialstatements:
As of Dec.2012 As of Dec. 2013
EndingInventory $32,000understated $46,000 overstated
Depreciation Exp. $7,000 understated
On December 31, 2013, a fully depreciated machine was sold for$35,000 but the sale was not recorded until January 15, 2014 whenthe cash was received. In 2012, a three-year insurance premium wasprepaid for $45,000 of which the entire amount was expensed in thefirstyear.
There were no other errors or corrections. Ignore any taxconsiderations.
What is the total net effect of errors on Mystical's 2013 workingcapital? (Points : 5)

Working capital overstatedby $31,000
Working capital overstated by$11,000
Working capital understated by$4,000
Working capital understated by$36,000

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