Recording Entries to Correct Inventory Errors

A company purchased merchandise on credit at December 31, 2020, for $9,600. That merchandise was in its warehouse that same day. This purchase was not recorded in 2020 because the accounting department did not receive the invoice from the vendor. In 2021, the invoice was received, reported, and paid. Assume financial statements are not issued yet for 2020 but adjusting entries have been completed.

a. Assuming that financial statements are not yet issued for 2020 when this error is discovered, what journal entry, if any, is recorded? The company applies a periodic inventory system.

b. Assuming that financial statements are already issued for 2020 when this error is discovered, what journal entry, if any, is recorded? Ignore income taxes.

Date Account Name Dr. Cr. a. Dec. 31, 2020 0 o Date Account Name Dr. cr. cr. b. Jan. 1, 2021 o O o Cash Accounts Receivable Inventory Allowance to Reduce Inventory to Net Realizable Value Allowance to Reduce Inventory to Market Value Accounts Payable Bonus Payable Estimated Liability on Purchase Commitment Retained Earnings Retained EarningsPrior Period Adjustment Sales Cost of Goods Sold Compensation Expense Holding Loss on Inventory Estimated Loss on Purchase Commitment N/A