In 2016, the controller of Sytec Corporation discovered that $62,000 of inventor

Question

In 2016, the controller of Sytec Corporation discovered that $62,000 of inventory purchases were incorrectly charged to advertising expense in 2015. In addition, the 2015 year-end inventory count failed to include $40,000 of company merchandise held on consignment by Erin Brothers. Sytec uses a periodic inventory system. Other than the omission of the merchandise on consignment, the year-end inventory count was correct. The amounts of the errors are deemed to be material. Required: 1. Determine the effect of the errors on retained earnings at January 1, 2016. (Ignore income taxes.) 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.)

Explanation / Answer

1)

2)

Beginning inventory Add: Net purchases $        62,000 Less: Ending inventory $        40,000 Cost of goods sold understated by $        22,000 Revenues: Less: cost of goods sold $        22,000 Less: Other expenses $        62,000 Net income under stated by $        40,000 Totally retained earnings understated by $        40,000

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