The income statement below for Guildford Granaries was prepared by the accountant from the accounting records at 30 June 2020. This statement showed a significant improvement over the preceding year when the profit for the year ended 30 June 2019 was $344 700.

On 14 July 2020, while reviewing inventory records, the accountant noticed that incoming shipments of goods received near the annual closing dates had been handled as follows:

1. Purchases in transit on 30 June 2019, amounting to $29 600, had not been included in the ending inventory for that year, although the invoice for the goods had been entered in the accounting records on 28 June 2019 and the goods had been shipped on 29 June from the supplier

(i.e. ownership of the merchandise had passed on that date).

2. Goods on hand at 30 June 2020, amounting to $16 400, were not included in the ending inventory at that date. They had been omitted because the purchase invoice for this shipment had not been received and the employee supervising the physical stocktake believed that the goods were not the property of the business until the invoice was received. The invoice in question arrived by mail late on 30 June 2020, but no entry was made for it before closing the accounts for 2020. The invoice was recorded on 6 July 2020 as a July transaction.

Required

(a) Calculate the corrected final profit for the years 2019 and 2020. State the effect of the errors on the profit for the year 2020.

(b) Indicate which items, if any, were incorrectly stated in the income statement for 2020, and in the balance sheet prepared at 30 June 2020. Indicate also whether the items were understated or overstated, and the amount of the error in dollar terms.

(c) Prepare any correcting journal entries necessary on 14 July 2020.

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INCOME Sales revenue Less: Sales returns and allowances Net sales revenue Cost of sales: Inventory, 1 July Add: Purchases GUILDFORD GRANARIES Income Statement for the year ended 30 June 2020 Freight inwards Less: Purchases returns and allowances Net cost of purchases $3258 000 42 800 3 300 800 26 500 $1326 000 3274 300 $5837 500 45200 5792 300