p. 486 E 9-25 Error correction; inventory error

p. 486 E 9-25 Error correction; inventory error

ANSWER KEY  E 9-25 Error correction; inventory error

E 9-25 During2011, WMC Corporation discovered that its ending inventories reported in itsfinancial statements were misstated by the following material amounts:

During 2011, WMC Corporation discovered that its ending inventories reported in its financial statements were misstated by the following material amounts:

2009    understated by             $120,000

2010    overstated by               150,000

WMC uses a periodic inventory system and the FIFO cost method.

Required:

1. Determine the effect of these errors on retained earnings at January 1, 2011, before any adjustments. Explain your answer. (Ignore income taxes.)

2. Prepare a journal entry to correct the errors.

3. What other step(s) would be taken in connection with the correction of the errors?

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