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Nataly_w [17]
2 years ago
8

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

ollowing material amounts: 2019 understated by $ 121,000 2020 overstated by 151,000 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. (Ignore income taxes.) 2. Prepare a journal entry to correct the errors.
Business
1 answer:
iragen [17]2 years ago
8 0

Answer:

Explanation:

For the year ended 2019;

the retained earnings and inventory were understated by $121,000;

For the year ended 2020;

Opening Inventory Understated    $121,000

Closing Inventory Overstated       ($151,000)

Net impact by which  retained earnings and inventory were overstated      ($30,000)

The compound effect on retained earnings as at January 1,2021 was;

Error of 2019-Retained Earnings understated  $121,000

Error of 2020-retained earnings overstated    ($30,000)

Net impact on retained earnings-understated   91,000

2. Journal Entry-Net impact of 2019 & 2020 errors

Inventory    Dr.$91,000

Retained earnings Cr.$91,000

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Total cash available               $265,870

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To purchase any securities the trade dealers at desk firstly call to government securities dealers of major commercial and investment banks. The govt. securities dealers provide the list of securities they want to sale.

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Panel A: Initial Balance Sheets: (IN MILLIONS)

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Assets- Securities: $56

Liabilities- Reserve Accounts: $56

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Assets- Loans: $644

Reserve Deposits at Fed: $56

Liabilities- Transaction deposits: $700

Panel B: After All Changes: (IN MILLIONS)

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Assets- Securities: $43.071

Liabilities- Reserve Accounts: $43.071

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Assets- Loans: $674.786

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Liabilities- Transaction deposits: $717.857

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Assets- Securities: $56

Liabilities- Reserve Accounts: $56

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$700 million + ($14 × 0.90 × (1/(0.06 + 0.3))) = $735.000 million

Reserve deposits at Fed:

$735.000 million × 0.06 = $44.100 million

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