In 2016, the controller of Sytec Corporation discovered that $42,000 of inventory purchases were incorrectly charged to advertising expense in 2015. In addition, the 2015 year-end inventory count failed to include $30,000 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 errors are deemed to be material.
Required:
1. Determine the effect of the errors on retained earnings at January 1, 2016. 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?

Explanation:

Required 1

determine the effect of the error on retained earnings at january1,2016;

in 2016, SE discovered that the expenses for advertising is $42000, it is an error caused by net purchase of inventory in the year 2015. the cost of goods sold for advertising expenses is overrated by $42000.

Therefore, the understatement advertising expense at ending inventory is $30000 held on  consignment caused in 2015 is detected that the goods sold to be overstated.

check the attachment for analysis of  2015 ending inventory error effects.

REQUIRED 2 ( CHECK THE ATTACHMENT BELOW)

REQUIRED 3;

Determine the steps taken  in connection with the correction of the error;

In 2015 the result  for the financial statement  was incorrect  with two errors by restated. The  correct inventory  amount cost of goods sold, advertising expenses , net income and retained earnings are reported in comparative purpose to their current annual report.

a previous period adjustment for retained earnings is reported with disclosure note for the nature of error.

finally, the correction is made at the year earning for net income and extra ordinary item purchased. Therefore , a calculated share for each retained earnings is get reported.

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