ERROR ANALYSIS
In reviewing the accounts of Painter Company in 2006 after the books for the prior year have been closed, you find that the following errors have been made in summarizing activities:
In 2004 the ending inventory was understated by $3,000. You also find that the company failed to accrue depreciation expense of $800 in 2004. You also find that an insurance premium of $7,200 was prepaid in 2004 covering the years 2004, 2005, and 2006. The prepayment was recorded with a debit to insurance expense.
REQUIRED: Ignoring taxes, determine what amount, if any, net income and retained earnings would be over or under stated in 2004 and 2005 as a result of these errors. Show your calculations and clearly label your answers.
Please be sure to show work by using the format below to list overstated or understated how the error will affect each part. Do both years separately.
Attachment:- Assignment Files.rar