The income statement below for Guildford Granaries was prepared by the accountant from the accounting records at 30 June 2017. This statement showed a significant improvement over the preceding year when the profit for the year ended 30 June 2016 was $344 700.

On 14 July 2017, while reviewing inventory records, the accountant noticed that incoming shipments of goods received near the annual closing dates had been handled as follows:

1. Purchases in transit on 30 June 2016, amounting to $29 600, had not been included in the ending inventory for that year although the invoice for the goods had been entered in the accounting records on 28 June 2016 and the goods had been shipped on 29 June from the supplier (i.e. ownership of the merchandise had passed on that date).

2. Goods on hand at 30 June 2017, amounting to $16 400, were not included in the ending inventory at that date. They had been omitted because the purchase invoice for this shipment had not been received and the employee supervising the physical stocktake believed that the goods were not the property of the business until the invoice was received. The invoice in question arrived by mail late on 30 June 2017, but no entry was made for it before closing the accounts for 2017. The invoice was recorded on 6 July 2017 as a July transaction.

	GUILDFORD GRANARIES Income Statement for the year ended 30 June 2017
	INCOME Sales revenue Less: Sales returns and allowances					$	5 837 500      45 200
	Net sales revenue Cost of sales: Inventory, 1 July Add:           Purchases          Freight inwards	$	3 258000      42 800	$	1326000		5 792 300
	Less: Purchases returns and allowances		3 300 800      26 500
	Net cost of purchases				3 274 300
	Cost of goods available for sale Less: Inventory 30 June				4 600 300    235 600
	Cost of sales						4 364 700
	GROSS PROFIT EXPENSES						1 427 600 1030600
	PROFIT					$	397000

Required

A. Calculate the corrected final profit for the years 2016 and 2017. State the effect of the errors on the profit for the year 2017.

B. Indicate which items, if any, were incorrectly stated in the income statement for 2017, and in the balance sheet prepared at 30 June 2017. Indicate also whether the items were understated or overstated, and the amount of the error in dollar terms.

C. Prepare any correcting journal entries necessary on 14 July 2017.