Question

Please provide the journal entry as well.

Thank you! :)

You have been hired as the new controller for the Ralston Company. Shortly after joining the company in 2021, you discover the following errors related to the 2019 and 2020 financial statements: a. Inventory at December 31, 2019, was understated by $8.000. b. Inventory at December 31, 2020, was overstated by $11,000 c. On December 31, 2020, inventory was purchased for $5.000. The company did not record the purchase until the inventory was paid for early in 2021. At that time, the purchase was recorded by a debit to purchases and a credit to cash. The company uses a periodic inventory system. Required: 1. Assuming that the errors were discovered after the 2020 financial statements were issued, analyze the effect of the errors on 2020 and 2019 cost of goods sold, net income, and retained earnings. (ignore income taxes.) 2. Prepare a journal entry to correct the errors. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Assuming that the errors were discovered after the 2020 financial statements were issued, analyze the effect of the errors on 2020 and 2019 cost of goods sold, net income, and retained earnings. (Ignore income taxes.) 2019 2020 Effect Amount Effect Amount Ending inventory Cost of goods sold Net Income Retained earnings

Answer 1

1.

	2019		2020
	Effect	Amount	Effect	Amount
Ending inventory	Understated	8000	Overstated	11000
Cost of goods sold	Overstated	8000	Understated	24000
Net income	Understated	8000	Overstated	24000
Retained earnings	Understated	8000	Overstated	16000

Working:

	2020
	Effect	Amount
Beginning inventory	Understated	8000
Add: Purchases	Understated	5000
Cost of goods available for sale	Understated	13000
Less: Ending inventory	Overstated	11000
Cost of goods sold	Understated	24000

2.

Account Titles and Explanation	Debit	Credit
Retained earnings	16000
Inventory		11000
Purchases		5000
(To record correction of error)