Lombardo Lumber Company incorrectly recorded inventory in 2021. Rather than recording ending inventory as $500, Lombardo’s accounting manager entered $560, overstating ending inventory by $60.

An inventory summary for 2021 and 2022 as actually recorded by the company follows.

Required

a. Prepare an analysis of this error over the 2-year period, recommend any correcting entries required to correct the inventory error, and comment on the effect of the error on gross profit. Assume that Lombardo discovered the error in 2022 before closing the books.

b. What correcting entries are necessary if Lombardo discovered the error in 2023 after closing the books for 2022?

Transcribed Image Text:

2021 Beginning inventory Purchases Available Ending inventory Cost of goods sold $ 200 +600 $ 800 (560) $240 2022 Beginning inventory Purchases Available Ending inventory Cost of goods sold $ 560 +600 $1,160 (900) $ 260