Problem - Tack, Inc., reported a retained earnings balance of $150,000 at December 31, 2010. In June 2011, Tack's internal audit staff discovered two errors that were made in preparing the 2010 financial statements that are considered material:
a. Merchandise costing $40,000 was mistakenly omitted from 2010 ending inventory.
b. Equipment purchased on July 1, 2010, for $70,000 was mistakenly charged to repairs expense account. The equipment should have been capitalized and depreciated using straight-line depreciation, a 10-year useful life, and $10,000 salvage value.
Required:
1. What amount should Tack report as a prior period adjustment to beginning retained earnings at January 1, 2011? (ignore taxes)
2. Give the journal entries that Tack would make in June 2011 to correct the errors made in 2010. Assume depreciation for 2011 is made a year-end adjusting entry. (ignore taxes)