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During 2021, WMC Corporation discovered that its ending inventories reported in its financial statements were misstated by th

Required 1 Required 2 Prepare a journal entry to correct the errors. (If no entry is required for a transaction/event, select

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Answer #1

Ending Inventory understated by $138000 in 2019 will have no effect on Retained earnings at Jan 1, 2021 because with ending inventory being understated by $138000 in 2019, beginning inventory on will also be understated by same amount i.e. $138000, and accounts for 2020 also has been closed, therefore cumulatively it will not have any impact on retained earnings at Jan 1, 2021

Ending inventory overstated by $168000 in 2020 means that net income for 2020 has been more by $168000 which means retained earnings is more by $168000

Journal entry to correct the error.

Account Titles Debit Credit
Retained Earnings $168000
Inventory, Beginning Balance $168000
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