Starbucks Company's December 31 year-end financial statements contained the following errors: Dec. 31, 2017 Dec. 31, 2018 Ending inventory $37,500 understated $55,000 overstated Depreciation expense 10,000 understated An insurance premium of $90,000 was prepaid in 2017 for the years 2017, 2018, and 2019. The prepayment was recorded with a debit to insurance expense. In addition, on December 31, 2018, fully depreciated machinery was sold for $47,500 cash, but the sale was not recorded until 2019. There were no other errors during 2018 or 2019 and no corrections have been made for any of the errors. The effective income tax rate is 27% in all years. What is the total net effect of the errors on Starbuck's 2018 net income? Write the necessary prior period adjustment for December 31, 2018. Label work on each item. How would Prior period adjustment be reported in the financial statements at December 31, 2018.

Answer rating: 100% (QA)

To determine the total net effect of the errors on Starbucks 2018 net income we need to analyze each error and calculate its impact Lets go through ea... View the full answer