At the beginning of 2020, Tanham Company discovered the following errors made in the preceding 2 years:

Reported net income was $27,000 in 2018 and $35,000 in 2019. The allowance for doubtful accounts had a zero balance at the beginning of 2018. No accounts were written off during 2018 or 2019. Ignore income taxes.

Required:
1. What is the correct net income for 2018 and 2019?
2. Prepare the adjusting journal entry in 2020 to correct the errors.

Transcribed Image Text:

2018 2019 Overstatement of ending inventory Omission of wages payable Omission of allowance for doubtful accounts Prepayment of insurance recorded as expense $5,000 $2,000 700 800 1,300 500 1,700 200