1. What is the net effect of the errors on Silk's 2015 net income? Overstated or understated by?

- OVERSTATED BY 30,300

Ending Inventory 2014 2015

2014 understated -13,500 13,500
2015 overstated 19,800
Depreciation 2014 understated -3,600
Unearned rental 2014 understated -5,000 5,000
Prepaid Insurance -8,000
Net Income -22,100 30,300

2. What is the net effect of the errors on Silk's 2015 retained earnings? Overstated or understated by? - OVERSTATED BY 8,2

Effect on 2014 net income -22,100

Effect on 2015 net income 30,300
Net effect on retained earnings 2015 8,200

3. What is the net effect of the errors in Silk's December 31, 2015 working capital?

2014 2015
Unrecorded dividends No effect No effect
Leasehold improvements expense -480,000
Understatement of depreciation
2014 (480,000/8*8/12) 40,000
2015 (480,000/8) 60,000
Unrecorded sales
2014 10,500 -10,500
2015 19,000
Unrecorded supplies on hand
2014 -6,000 6,000
2015 -15,000
Net effect -435,500 59,500

4. What is the net effect of the above errors in the 2014 net income? Over or under?
UNDERSTATED BY 435,500

5. What is the net effect of the error in the 2015 net income? Over or under?
OVERSTATED BY 59,500
? - OVERSTATED BY 30,300

ted by? - OVERSTATED BY 8,200