You have been hired as the new controller for the Ralston Company. Shortly after joining the company in 2021, you discover the following errors related to the 2019 and 2020 financial statements:

1. Inventory at 12/31/2019 was understated by $7,300.
2. Inventory at 12/31/2020 was overstated by $11,600.
3. On 12/31/2020, inventory was purchased for $4,300. The company did not record the purchase until the inventory was paid for early in 2021. At that time, the purchase was recorded by a debit to purchases and a credit to cash.

The company uses a periodic inventory system. Required: 1. Assuming that the errors were discovered after the 2020 financial statements were issued, analyze the effect of the errors on 2020 and 2019 cost of goods sold, net income, and retained earnings. (Ignore income taxes.) 2. Prepare a journal entry to correct the errors.

Assuming that the errors were discovered after the 2020 financial statements were issued, analyze the effect of the errors on 2020 and 2019 cost of goods sold, net income, and retained earnings. (Ignore income taxes.) (Indicate the effect by selecting "O" for Overstated, "U" for Understated and "NE" for No effect. Input all values as positive amounts. Be certain to enter zero wherever needed.)

2019			2020
Beginning inventory			Beginning inventory
Plus: Net purchases			Plus: Net purchases
Less: Ending inventory			Less: Ending inventory
Cost of goods sold			Cost of goods sold
Revenues			Revenues
Less: Cost of goods sold			Less: Cost of goods sold
Less: Other expenses			Less: Other expenses
Net income			Net income
Retained earnings			Retained earnings

Prepare a journal entry to correct the errors. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

• Record journal entry to correct errors.

Note: Enter debits before credits.

Event	General Journal	Debit	Credit
1