During 2018, WMC Corporation discovered that its ending inventories reported on its financial statements were misstated by

Question:

During 2018, WMC Corporation discovered that its ending inventories reported on its financial statements were misstated by the following amounts:

2016.................... understated by ....................$120,000

2017..................... overstated by .....................150,000

WMC uses the periodic inventory system and the FIFO cost method.

Required:

1. Determine the effect of these errors on retained earnings at January 1, 2018, before any adjustments. Explain your answer. (Ignore income taxes.)

2. Prepare a journal entry to correct the error.

3. What other steps would be taken in connection with the error?

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