You are the controller of a rapidly growing mass merchandiser. The company uses a periodic
inventory system. As the company has grown and accounting systems have developed, errors
have occurred in both the physical count of inventory and the valuation of inventory on the balance
sheet. You have been able to identify the following errors as of December 2008:
• In 2006, one section of the warehouse was counted twice. The error resulted in inventory overstated
on December 31, 2006, by approximately $45,600.
• In 2007, the replacement cost of some inventory was less than the FIFO value used on the
balance sheet. The inventory would have been $6,000 less on the balance sheet dated
December 31, 2007.
• In 2008, the company used the gross profit method to estimate inventory for its quarterly
financial statements. At the end of the second quarter, the controller made a math error and
understated the inventory by $20,000 on the quarterly report. The error was not discovered
until the end of the year.
What, if anything, should you do to correct each of these errors? Explain your answers.