During 2016, WMC Corporation discovered that its ending inventories reported on

Question

During 2016, WMC Corporation discovered that its ending inventories reported on its financial statements were misstated by the following amounts:

   

Determine the effect of 2014 error on retained earnings at January 1, 2016, before any adjustments. (Ignore income taxes.)

     

Determine the effect of 2015 error on retained earnings at January 1, 2016, before any adjustments. (Ignore income taxes.)

     

Prepare a journal entry to correct the error made in 2015. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

     

During 2016, WMC Corporation discovered that its ending inventories reported on its financial statements were misstated by the following amounts:

Explanation / Answer

1 a the effect of the error in the year 2004 on the retained will be of nil on 1st jan 2016

The reason for the same is that because of understatement of closing stock by 158000 the retained were understated by 158000 in January 2015. However as the mistake was continued the opening stock/inventory for 2015 was understated and resulting in overstatement of retained earnings by 158000. Therefore as on 1st jan 2016 there is nil effect on the retained earnings.

The effect of overstatement of inventory by 226000 is that the retained earnings will be overstated by 226000

Journal entry for error in 2005

Profit/retained earnings a/c Dr 226000

To inventory 226000

Here is extra information for future question

Kindly let me know if it was helpful in comments section....

Thanks.

Inventory profit Closing overstated overstated Closing understated understated Opening overstated understated Opening understated overstated

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.