Question 2 (38 marks)

Liberty Company reported net incomes for a three-year period as follows:

2012, $275,000; 2013, $296,000; 2014, $270,000.

In reviewing the accounts in 2015 after the books for the prior year have been closed, you find that the following errors have been made in summarizing activities:

2012 2013 2014

Overstatement of ending inventory $69,000 $63,000 $36,000

Understatement of accrued advertising/g expense 8,500 12,000 9,500

Instructions

(a) Determine corrected net incomes for 2012, 2013, and 2014. (32 marks)

(b) Give the entry to bring the books of the company up to date in 2015, assuming that the books have been closed for 2014. (6 marks)