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A company's financial statement is shown below (figure A). They were doing a count of their inventory and discovered that they understated year 1's inventory by $62000 and overstated year 2's by $32000. Figure B shows the adjustments used to correct the reported amounts.
Question 1: What is the error in total net income for the combined three-year period resulting from the inventory errors?
For Year Ended December
31 Year 1
Year 2
Year 3
(a)
Cost of goods sold
$ 737,000
$ 967,000
$
802,000
(b)
Net income
280,000
287,000
262,000
(c)
Total current assets
1,259,000
1,372,000
1,242,000
(d)
Total equity
1,399,000
1,592,000
1,257,000
Cost of goods sold:
lar______________ 0
Reported amount
$ 737,000 0
$ 967,000 0
$ 802,000 0
Adjustments for:
12/31/Year 1 error
(62,000) 0
62,000 0
0 0
12/31/Year 2 error
of)
32,000 0
(32,000) 0
Corrected amount
$ 675,000
$ 1,061,000
$ 770,000
Net income: 1W
$ 280,000 0
$ 287,000 Q
$ 262,000 0
00
$ 342,000
$ 193,000
$ 294,000
Total current fflssets:
$ 1,259,000 0
$ 1,372,000 0
$ 1,242,000 0
$ 1,321 000
$ 1,340 000
$ 1,242 000
Equity:
$ 1,399,000 0
$ 1,592,000 0
$ 1,257,000 0
$ 1,461 000
$ 1,560,000
$ 1,257 000
Financial Statement Analysis and Preparation
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