E22-18B (Error Analysis) Six Above Company’s December 31 year-end financial statements contained the following errors. December 31, 2013 December 31, 2014 Ending inventory $15,600 overstated $36,000 overstated Depreciation expense $21,500 understated — Re

E22-18B (Error Analysis) Six Above Company’s December 31 year-end financial statements contained the   following errors.

                                                 December 31, 2013                             December 31, 2014

Ending inventory                 $15,600 overstated                               $36,000 overstated

Depreciation expense        $21,500 understated                                            —

Rent of $165,000 was prepaid in 2014 covering the 12-month period beginning July 1, 2014. The entire amount was charged to expense in 2014. In addition, on December 31, 2014, vacant land was sold for $65,000 cash ($5,000 cost), but the entry was not recorded until 2015. There were no other errors during 2013 or 2014, and no corrections have been made for any of the errors. (Ignore income tax considerations.)

Instructions

(a) Compute the total effect of the errors on 2015 net income.

(b) Compute the total effect of the errors on the amount of Six Above Company’s working capital at December 31, 2015.

(c) Compute the total effect of the errors on the balance of Six Above Company’s retained earnings at December 31, 2015.