In 20X7, after the 20X6 annual financial statements had been issued, Marcella Stores Inc. discovered that a significant transposition error had been made in recording the ending inventory for 20X6. The inventory had been recorded as $1,401,000 when it should have been $1,104,000. The
average income tax rate is 30%.

Required:
1. Explain how discovery of this error will affect Marcella’s comparative financial statements and financial reporting for 20X7.
2. Prepare any journal entries that would be necessary in 20X7 to correct this error.
3. Suppose that the error in the 20X6 ending inventory was not discovered until 20X8. How, if at all, would this change your answers to requirements 1 and 2?