Problem - Toland Company's December 31 year-end financial statements contained the following errors:
The ending inventory at December 31, 2014 was overstated by $15,600.
The ending inventory at December 31, 2015 was overstated by $36,000.
Depreciation expense for the year ended December 31, 2014 was understated by $21,500.
Toland prepaid rent expense of $165,000 on July 1, 2015 to cover the 12-month period beginning July 1, 2015. Toland recorded the entire amount as an expense in 2015.
In November 2015, Toland sold vacant land with an original cost of $5,000 for $65,000 cash, but did not record the sale until January 2016.
Assume there are no other errors during 2014 or 2015, and no corrections have been made for any of the errors listed above. Ignore the impact of income taxes.
(1) Compute the total effect of the errors on 2015 net income.
(2) Compute the total effect of the errors on the balance of retained earnings at December 31, 2015.
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