In preparing the year- end financial statements for 20X7, the controller of Risk ’ n Save Inc. discovered that the opening inventory for 20X6 had been over-stated by $ 20,000. The company has a 20% income tax rate.
1. How will discovery of this error change the amounts previously reported on the company’s SFP and SCI for the years prior to 20X7?
2. What will be the impact on the company’s 20X7 reporting? Prepare a journal entry to correct the error at the end of 20X7, if needed.