The December 31, 2011, inventory of Tog Company, based on a physical count, was determined to be $450,000. Included in that count was a shipment of goods that cost $50,000 received from a supplier at the end of the month. The purchase was recorded and paid for in 2012. Another supplier shipment costing $20,000 was correctly recorded as a purchase in 2011. However, the merchandise, shipped FOB shipping point, was not received until 2012 and was incorrectly omitted from the physical count. A third purchase, shipped from a supplier FOB shipping point on December 28, 2011, did not arrive until January 3, 2012. The merchandise, which cost $80,000, was not included in the physical count and the purchase has not yet been recorded.
The company uses a periodic inventory system.
Required:
1. Determine the correct December 31, 2011, inventory balance and, assuming that the errors were discovered after the 2011 financial statements were issued, analyze the effect of the errors on 2011 cost of goods sold, net income, and retained earnings. (Ignore income taxes.)
2. Prepare a journal entry to correct the errors.