During 2018, Wayne Corporation discovered that its ending inventories reported o

Question

During 2018, Wayne Corporation discovered that its ending inventories reported on its financial statements were misstated by the following amounts: 2016 ending inventory overstated by $72,000; 2017 ending inventory understated by $100,000. Wayne uses the periodic inventory system and the FIFO cost method. Determine the effect of these errors on retained earnings at January 1, 2018, before any adjustments:

a) Retained earnings at January 1, 2018 is understated by $100,000.
b) Retained earnings at January 1, 2018 is understated by $20,000.
c) Retained earnings at January 1, 2018 is overstated by $20,000.
d) Retained earnings at January 1, 2018 is overstated by $100,000.

Explanation / Answer

a) Retained earnings at January 1, 2018 is understated by $100,000. Dear Student Thank you for using Chegg Please find below the answer 2016 ending inventory overstated by $72,000 that means 2017 beginning inventory overstated by $72,000 Which means 2017 profit would be less by 72,000 and 2016 profit would be more by 72,000..Thus net off 2017 ending inventory understated by $100,000 Thus profit would be less by 100,000 a) Retained earnings at January 1, 2018 is understated by $100,000.

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