4 During 2016, WMC Corporation discovered that its ending inventories reported i

Question

4 During 2016, WMC Corporation discovered that its ending inventories reported in its financial statements were misstated by the following material amounts 2.5 points 2014 understated by $132,000 2015 overstated by 162,000 Print 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, 2016, before References any adjustments. (lgnore income taxes.) Retained earnings would be 2. Prepare a journal entry to correct the errors. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record the entry to correct the errors Note: Enter debits before credits Event General Journal Debit Credit Record entry Clear entry View general journal

Explanation / Answer

Retained earnings is overstated since ending inventory for 2015 is overstated so cost of goods sold will be understated resulting in overstatement of net income for year 2014 the error will be auto corrected since ending inventory will become beginning inventory in year 2015 Journal entry Event General journal Debit Credit Retained earning 162,000 inventory 162,000

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