The net income as per the financial records of Creative Gifts was determined without knowledge of the following ending inventory errors. The 2018 year was Creative Gift`s first year in business. No dividends were declared and paid in 2018 or 2019.

The following chart shows net income as per the company`s books for each year and the inventory errors for each year:

Year Net Income as stated per books Ending Inventory Error

2018 $50,000 Overstated $5,000

2019 $52,000 Overstated $9,000

Required:

1. Calculate the corrected net income and retained earnings ending balances for each of 2018 and 2019. (6 marks)
2. Prepare the journal entries to correct the books as follows:
3. 1. For 2018, assuming the 2018 books are still open (2 marks)
4. 2. For 2019, assuming the books for 2018 are closed: (3 marks)
      • To correct the 2018 error
      • To correct the 2019 error