During 2024, Lipe and Lipe Corporation discovered that its ending inventories reported on its financial statements were misstated by the following amounts: 2022 2023 understated by overstated by $128,000 166,000 Lipe and Lipe uses the periodic inventory system and the FIFO cost method. 

Required: 1-a. Determine the effect of 2022 errors on retained earnings at January 1, 2024, before any adjustments. (Ignore income taxes.)   

1-b. Determine the effect of 2023 errors on retained earnings at January 1, 2024, before any adjustments. (ignore income taxes.)  

2. Prepare a journal entry to correct the error in 2024.  

3. Will Lipe and Lipe account for the error (a) retrospectively or (b) prospectively?  

2022 Beginning inventory Plus: net purchases Less: ending inventory Cost of goods sold Revenues Less: cost of goods sold Less: other expenses Net income Retained earnings 2022 effect on 2024 Beginning inventory Plus: net purchases Less: ending inventory Cost of goods sold Revenues Less: cost of goods sold Less: other expenses Net income Retained earnings