Error Analysis Emerson Tool Companys December 31 year-end financial statements contained the following errors. December 31, 2009 December 31, 2010 Ending inventory $9,600 understated $7,100 overstated Depreciation expense $2,300 understated An insurance premium of $60,000 was prepaid in 2009

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

December 31, 2009 December 31, 2010

Ending inventory $9,600 understated $7,100 overstated

Depreciation expense $2,300 understated —

An insurance premium of $60,000 was prepaid in 2009 covering the years 2009, 2010, and 2011. The entire amount was charged to expense in 2009. In addition, on December 31, 2010, fully depreciated machinery was sold for $15,000 cash, but the entry was not recorded until 2011. There were no other errors during 2009 or 2010, and no corrections have been made for any of the errors. (Ignore income tax considerations.)

(a) Compute the total effect of the errors on 2010 net income.

(b) Compute the total effect of the errors on the amount of Emerson’s working capital at December 31, 2010.

Depreciation
Depreciation is an important concept in accounting. By definition, depreciation is the wear and tear in the value of a noncurrent asset over its useful life. In simple words, depreciation is the cost of operating a noncurrent asset producing... Ending Inventory
The ending inventory is the amount of inventory that a business is required to present on its balance sheet. It can be calculated using the ending inventory formula Ending Inventory Formula =... Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...