On 30 June 2019, the Accounting V.P. of LMN Ltd. discovered accounting errors in the 2016 statements: Equipment purchases of $400,000 on Jan. 1, 2016 had inadvertently been charged to equipment rental expenses. No depreciation has been taken on this equipment. The accounting depreciation rate is the same as the rate for tax purposes (10% per year). The ending and beginning inventories had been properly stated. LMNs income tax rate is 28% and has a December 31 year end.

Required:

a) Prepare general journal entries to record the correction of the above error.

b. Calculate the earnings correction that LMN must show in the 2019 financial statements. Where will these amounts be disclosed?