Homework SourseIn 2016 the controller of Sytec Corporation discovered that
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.)
Solution
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 |
