Menlo Company's business year ends on December 31. Listed below are purchase transactions which occurred during the last few days of 2020 or during the first few days of 2011. The inventory, determined by physical count, was taken after the close of business on December 31, 2010. The only adjusting entry recorded to date has been to enter the December 31 physical inventory on the books and to remove the beginning inventory.

INSTRUCTION:

(a) On the accompanying chart, indicate the effect of each of these transactions on the ending inventory and on reported net income for 2020, by writing the words overstated, understated, or no effect in the appropriate column. Both columns must be answered for each transaction. 

(b) Prepare all necessary correcting entries for 2020. 

(c) Indicate which of the correcting entries must be reversed in 2021 by preparing the necessary reversing entries. 

12/31/2020

Physical 2020

Inventory Income

1. An invoice for $8,000, terms f.o.b. shipping point, was received and entered December 30. The invoice shows that the merchandise was shipped December 29, and the receiving report indicates the merchandise was received January 2. _______ _______

2. An invoice for $300, terms f.o.b. shipping point, was received and entered December 30. The invoice shows that merchandise was shipped December 29, and the receiving report shows the merchandise was received December 31. _______ _______

3. An invoice for $3,000, terms f.o.b. shipping point, was received and entered January 2. The invoice shows the merchandise was shipped December 30, and the receiving report indicates the merchandise was received December 31. _______ _______

4. An invoice for $500, terms f.o.b. destination, was received and entered December 30. The receiving report shows the merchandise was received January 2. _______ _______

5. An invoice for $500, terms f.o.b. destination, was received and entered December 29. The receiving report indicates that the merchandise was received December 31. _______ _______

6. An invoice for $1,500, terms f.o.b. destination, was received and entered January 2. The receiving report indicates the merchandise was received December 31. _______ _______

7. Merchandise costing $12,000 and with a selling price of $18,000 was on consignment to Maris Distributing Company and was on that company's premises on December 31. No entry has been made for the consignment. _______ _______