Question

Wolverine Company financial statements included the effects of these errors: Reported Net Income for Year 1 was $20,000. Reported Net Income for Year 2 was $18,000. Indicate the error in 12/31/2 Retained Earnings:

Answer 1

Net income year 2 = $21,300

Step-by-step explanation:

I looked for the missing information and found this:

Year Depreciation overstated Prepaid expense omitted

1 $2,500 $2,000

2 $4,000 $2,700

If your question doesn't include the same values, just adjust the answer.

Year 2's net income = net income (year 2) + overstated depreciation (year 2) + omitted prepaid expenses (year 1) - omitted prepaid expenses (year 2) = $18,000 + $4,000 + $2,000 - $2,700 = $21,300