During 2021, WMC Corporation discovered that its ending inventories reported in its financial statements were misstated by the following material amounts:              2019                  understated by                  $120,000             2020                  overstated by                      150,000 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, 2021, before any adjustments. Explain your answer. (Ignore income taxes.)2. Prepare a journal entry to correct the errors.3. What other step(s) would be taken in connection with the correction of the errors?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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During 2021, WMC Corporation discovered that its ending inventories reported in its financial statements were misstated by the following material amounts:

             2019                  understated by                  $120,000
             2020                  overstated by                      150,000

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, 2021, before any adjustments. Explain your answer. (Ignore income taxes.)
2. Prepare a journal entry to correct the errors.
3. What other step(s) would be taken in connection with the correction of the errors?

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