Krafty Kris, Inc., discovered the following errors after the 20X1 financial statements were issued:

a. A major supplier shipped inventory valued at $8,550 to Krafty Kris on consignment. This merchandise was mistakenly included in the inventory taken by Krafty Kris on December 31, 20X0. (Goods shipped on consignment are the property of the consignor and should not have been included in Krafty Kris’s inventory.)

b. Krafty Kris renewed its liability insurance policy on October 1, 20X0, paying a $36,000 premium and debiting Insurance expense. No further entries have been made. The premium purchased insurance coverage for a period of 36 months.

c. Repair expense was debited at the time equipment was purchased for $100,000 on January 1, 20X1. The equipment has a life of five years; its salvage value is considered immaterial. Krafty uses straight-line depreciation method.

Required:

1. Prepare a journal entry to correct these errors. Ignore income taxes.

2. If these errors were to remain uncorrected, what would be the effects on the 20X2 financial statements issued by Krafty Kris, Inc.?