In 2013, the controller of Sytec Corporation discovered that $42,000 of inventory purchases were incorrectly charged to advertising expense in 2012. In addition, the 2012 year-end inventory count failed to include $30,000 of company merchandise held on consignment by Erin Brothers. Sytec uses a periodic inventory system. Other than the omission of the merchandise on consignment, the year-end inventory count was correct. The amounts of the errors are deemed to be material.
1. Determine the effect of the errors on retained earnings at January 1, 2013. Explain your answer. (Ignore income taxes.)
2. Prepare a journal entry to correct the errors.
3. What other step(s) would be taken in connection with the correction of the errors?