Apollo Company reported the following financial information for the years 2011 and 2012. At the end of 2011, $1,500 of inventory that was in transit and owned by Apollo was included in purchases but not counted in ending inventory. The inventory was received in 2012 and was ultimately sold during 2012.

Required
a. Identify whether Apollo made an error in the accounting for its inventory. Specifically, was Apollo in error by including the inventory in transit in its 2011 purchases or by excluding it from its 2011 ending inventory?
b. If Apollo made an error, prepare corrected cost of goods sold models for 2011 and 2012. Use the models to demonstrate why some inventory errors are said to be counterbalancing.

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2011 2012 Beginning inventory Purchases Cost of goods available for sale Ending inventory Cost of goods sold $13,000 11,500 16,000 7,000 $29,000 $28,500 11,500 12,500 $17500 $16,000