At the beginning of 2014, Tanham Company discovered the following errors made in the preceding 2 years:
2012 2013
Overstatement of ending inventory $5,000 $2,000
Omission of wages payable 700 800
Omission of allowance for doubtful accounts 1,300 1,700
Prepayment of insurance recorded as expense 500 200
Reported net income was $27,000 in 2012 and $35,000 in 2013. The allowance for doubtful acounts had a zero balance at the beginning of 2012. No accounts were written off during 2012 or 2013. Ignore income taxes.
Required:
1. What is the correct net income for 2012 and 2013?
2. Prepare the adjusting journal entry in 2014 to correct the errors.