Reference no: EM133014614

Question - Analysis of inventory errors - Navajo Company's year-end financial statements show the following. The company recently discovered that in making physical counts of inventory, it had made the following errors: Year 1 ending inventory is understated by $60,000 and Year 2 ending inventory is overstated by $30,000.

For Year Ended December 31 Year 1 Year 2 Year 3

(a) Cost of goods sold $735,000 $965,000 $800,000

(b) Net income 278,000 285,000 260,000

(c) Total current assets 1,257,000 1,370,000 1,240,000

(d) Total equity 1,397,000 1,590,000 1,255,000

Required -

1. For each key financial statement figure-(a), (b), (c), and (d) above-prepare table to show the adjustments necessary to correct the reported amounts.

2. What is the total error in combined net income for the three-year period resulting from the inventory errors?