Tack, Inc., reported a Retained earnings balance of $150,000 at December 31, 2013. In June 2014, Tack’s internal audit staff discovered two errors that were made in preparing the 2013 financial statements that are considered material:
a. Merchandise costing $40,000 was mistakenly omitted from the 2013 ending inventory.
b. Equipment purchased on July 1, 2013, for $70,000 was mistakenly charged to a 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.
1. What amount should Tack report as a prior period adjustment to beginning Retained earnings at January 1, 2014? (Ignore taxes.)
2. Prepare the journal entries that Tack would make in June 2014 to correct the errors made in 2013. Assume that depreciation for 2014 is made as a year-end adjusting entry. (Ignore taxes.)