PROBLEM 1

Upon inspection of the records of Sevirous Company, the following facts were discovered for the year-ended December 31, 2017.

A fire insurance premium of $120,000 was paid and charged as insurance expense for 2017. The fire insurance policy covers one year from April 1, 2017.

Inventory on January 1, 2017 was overstated by $80,000. Inventory on December 31, 2017 was overstated by $120,000. Taxes of $60,000 for the fourth quarter of 2017 were paid on January 20, 2018 and charged as expense of 2018.

On December 5, 2017, a cash advance of $100,000 by a customer was received for goods to be delivered in January 2018. The amount of $100,000 was credited to sales.

The gross profit on sales is 40%.

Net Income for the year before any adjustments is $1,550,000.

REQUIRED:

If the errors were discovered in January 2018, what must be the credit to adjust 2017 Net Income/ Retained Earnings? (WRITE THE JOURNAL ENTRY)