On March 5, 2017, you were hired by Miami Hangers Inc., a closely held company, as a staff member of its newly created internal auditing department. While reviewing the companys records for 2015 and 2016, you discover that no adjustments have yet been made for the items listed below.

Merchandise inventory costing $34,600 was in the warehouse at December 31, 2015, but was incorrectly omitted from the physical count at that date. The company uses the periodic inventory method.

Instructions 1. What is the effect of each item on the 2015 and 2016, December 31, income statement and retained earnings balance?

2. Assuming the 2016 books are not closed, what are the journal entries to correct these errors?