The records of Fremont Corporations initial and unaudited accounts show the following ending inventory balances, which must be adjusted to actual costs:

	Units	Unaudited Costs
Work-in-process inventory	120,000	$793,152
Finished goods inventory	20,000	337,560

As the auditor, you have learned the following information. Ending work-in-process inventory is 40 percent complete with respect to conversion costs. Materials are added at the beginning of the manufacturing process, and overhead is applied at the rate of 80 percent of the direct labor costs. There was no finished goods inventory at the start of the period. The following additional information is also available:

		Costs
	Units	Direct Materials	Direct Labor
Beginning inventory (80% complete as to labor)	80,000	$ 240,000	$ 546,000
Units started	400,000
Current costs		1,560,000	2,208,000
Units completed and transferred to finished goods inventory	360,000

Required

Prepare a production cost report for Fremont using the weighted-average method. (Hint: You will need to calculate equivalent units for three categories: materials, labor, and overhead.)

Show the journal entry required to correct the difference between the unaudited records and actual ending balances of Work-in-Process Inventory and Finished Goods Inventory. Debit or credit Cost of Goods Sold for any difference.

If the adjustment in requirement (b) is not made, will the companys income and inventories be overstated or understated?

(CPA adapted)