Question - Crane Tool Company's 31 year-end financial statements contained the following errors.
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December 31, 2017
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December 31, 2018
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Ending inventory
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$10,500 understated
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$8,200 overstated
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Depreciation expense
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$2,400 understated
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An insurance premium of $69,000 was prepaid in 2017 covering the years 2017, 2018, and 2019. The entire amount was charged to expense in 2017. In addition, on December 31, 2018, fully depreciated machinery was sold for $16,000 cash, but the entry was not recorded until 2019. There were no other errors during 2017 or 2018, and no corrections have been made for any of the errors. (Ignore income tax considerations.)
(a) Compute the total effect of the errors on 2018 net income?
(b) Compute the total effect of the errors on the amount of Crane's working capital at December 31, 2018.
(c) Compute the total effect of the errors on the balances of Crane's retained earnings at December 31, 2018.