Question

The reported net incomes for the first 2 years of Larkspur Products, Inc., were as follows: 2020, $156,100; 2021, $196,600. Early in 2022, the following errors were discovered. 1. Depreciation of equipment for 2020 was overstated $16,400. 2. Depreciation of equipment for 2021 was understated $36,400. 3. December 31, 2020, inventory was understated $45,100. 4. December 31, 2021, inventory was overstated $16,100.

Answer 1

Step-by-step explanation:

Given that the following errors were discovered.

1. Depreciation of equipment for 2020 was overstated $16,400.

2. Depreciation of equipment for 2021 was understated $36,400.

3. December 31, 2020, inventory was understated $45,100.

4. December 31, 2021, inventory was overstated $16,100.

Details Effect on retained earning

Overstatement of

2020 Depreciation. $16,400

Overstatement of

2021 inventory. ($16,100)

Understatement of

2021 Depreciation. ($36400)

Total effect on retained

Earning. ($36,100)

2020 inventory understatement has been corrected automatically at the end of 2021