Choose the correct answer

Use the following information for questions 28 through 30.

Bishop Co. began operations on January 1, 2014. Financial statements for 2014 and 2015 con- tained the following errors:

Dec. 31, 2014                      Dec. 31, 2015

Ending inventory                                        $132,000 too high               $146,000 too low

Depreciation expense                                    84,000 too high                             —

Insurance expense                                         60,000 too low                    60,000 too high

Prepaid insurance                                          60,000 too high                             —

In addition, on December 31, 2015 fully depreciated equipment was sold for $28,800, but the sale was not recorded until 2016. No corrections have been made for any of the errors. Ignore income tax considerations.

 

28.     The total effect of the errors on Bishop’s 2015 net income is

a.   understated by $366,800.

b.   understated by $234,800.

c.   overstated by $117,200.

d.   overstated by $249,200.

 

29.     The total effect of the errors on the balance of Bishop’s retained earnings at December 31, 2015 is understated by

a.   $318,800.

b.   $258,800.

c.   $174,800.

d.   $126,800.

 

30.     The total effect of the errors on the amount of Bishop’s working capital at December 31, 2015 is understated by

a.   $390,800.

b.   $306,800.

c.   $174,800.

d.   $114,800.