The records of Pelletier Inc. show the following data for the years ended July 31:
After the company’s July 31, 2012, year end, the controller discovers two errors:
1. at the end of 2010 was actually $27,000, not $37,000. Pelletier included goods held on consignment for another company that were mistakenly included in the 2010 inventory account.
2. A purchase of merchandise on account for $5,000 was recorded as a purchase in August 2011 (fiscal 2012) and included in the $37,000 2012 balance. It should have been recorded as a purchase in July 2011 (fiscal 2011) and included in the 2011 inventory. The of $37,000 was correct at the end of July 2012.
Instructions
(a) For each of the three years, prepare both the incorrect and corrected income statements through to profit before income tax.
(b) What is the combined (total) impact of the errors on retained earnings (ignoring any income tax effects) for the three years before correction? After correction?
(c) Calculate both the incorrect and corrected s for each of 2012 and 2011.
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