In the year 2020, after the 2019 financial statements were issued, the internal auditors of Irish Research, Inc. discovered that goods purchased from vendors and costing $1.6 million (an amount material to Irish Research) that were shipped f.o.b. shipping point in December of 2019 were in transit on 12/31/19. The goods were recorded as a purchase in December of 2019 but were not included in the 2019 year-end inventory when the 2019 financial statements were issued. Assume Irish Researchs tax rate is 20%.

Required: 1) Indicate the effect of this error on 2019 ending inventory, cost of goods sold, net income, and ending retained earnings if the error goes uncorrected. Simply state, understated by or overstated by, along with the amount, for each item.

2) Prepare the journal entry needed in 2020 to correct the error.