During 2021, WMC Corporation discovered that its ending inventories reported on its financial statements were misstated by the following amounts: 2019 understated by $ 126,000 2020 overstated by 162,000 WMC uses the periodic inventory system and the FIFO cost method.

Required:

1-a. Determine the effect of 2019 errors on retained earnings at January 1, 2021, before any adjustments. (Ignore income taxes.) 1-b. Determine the effect of 2020 errors on retained earnings at January 1, 2021, before any adjustments. (Ignore income taxes.)

2. Prepare a journal entry to correct the error in 2021.

3. Will WMC account for the error (a) retrospectively or (b) prospectively? Retrospectively

2. Retained Earnings

Inventory