In 2011, the controller of Sytec Corporation discovered that $42,000 of inventory purchases were incorrectly charged to advertising expense in 2010. In addition, the 2010 year-end inventory count failed to include $30,000 of company merchandise held on consignment by Erin Brothers. Sytec uses a periodic inventory system. Other than the omission of the merchandise on consignment, the year-end inventory count was correct. The amounts of the errors are deemed to be material.

Required:

1. Determine the effect of the errors on retained earnings at January 1, 2011. Explain your answer. (Ignore income taxes.)

2. Prepare a journal entry to correct the errors.

3. What other step(s) would be taken in connection with the correction of the errors?