The records of Fremont Corporation’s initial and unauditedaccounts show the following ending inventory balances, which mustbe adjusted to actual costs:

	Units	Unaudited Costs
Work-in-process inventory	120,000	$793,152
Finished goods inventory	20,000	337,560

As the auditor, you have learned the following information.Ending work-in-process inventory is 40 percent complete withrespect to conversion costs. Materials are added at the beginningof the manufacturing process, and overhead is applied at the rateof 80 percent of the direct labor costs. There was no finishedgoods inventory at the start of the period. The followingadditional information is also available:

		Costs
	Units	Direct Materials	Direct Labor
Beginning inventory (80% complete as to labor)	80,000	$ 240,000	$ 546,000
Units started	400,000
Current costs		1,560,000	2,208,000
Units completed and transferred to finished goodsinventory	360,000

Required

Prepare a production cost report for Fremont using theweighted-average method. (Hint: You will need to calculateequivalent units for three categories: materials, labor, andoverhead.)

Show the journal entry required to correct the differencebetween the unaudited records and actual ending balances ofWork-in-Process Inventory and Finished Goods Inventory. Debit orcredit Cost of Goods Sold for any difference.

If the adjustment in requirement (b) is not made, willthe company’s income and inventories be overstated orunderstated?

(CPA adapted)