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During 2024, Lipe and Lipe Corporation discovered that its ending inventories reported on its financial statements were

Question:

During 2024, Lipe and Lipe Corporation discovered that its ending inventories reported on its financial statements were misstated by the following amounts:

Lipe and Lipe uses the periodic inventory system and the FIFO cost method.


Required:
1. Determine the effect of these errors on retained earnings at January 1, 2024, before any adjustments (Ignore income taxes.)
2. Prepare a journal entry to correct the error in 2024.
3. Will Lipe and Lipe account for the error (a) retrospectively or (b) prospectively?

Transcribed Image Text:

2022 2023 understated by overstated by $120,000 150,000

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Requirement 1 The 2022 error caused 2022 net income to be understated but since 2022 ending inventor...View the full answer


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Related Book For  answer-question
Intermediate Accounting

Intermediate Accounting

ISBN: 9781264134526

11th Edition

Authors: David Spiceland

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Rectification of errors refers to the process of correcting mistakes or errors in accounting records to ensure that they accurately reflect the financial position of a business. There are several types of errors that can occur in accounting records, including errors of omission, errors of commission, errors of principle, compensating errors, errors of original entry, and errors of reversal. The process of rectifying errors involves identifying the error, determining the correct entry, and making the necessary adjustments to the books of accounts. The rectification of errors can be done by making journal entries, adjusting entries, or by creating a suspense account to temporarily hold the difference until the error is identified and corrected. The steps are; locate the error, determine the type of error, make the necessary corrections, and recheck the accounts. Rectification of errors is important to ensure the accuracy of financial statements, which are used by stakeholders to make important business decisions. Accurate accounting records are essential for making informed decisions, managing cash flows, and complying with legal and regulatory requirements.

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