Navajo Company's financial statements show the following.
For Year Ended December 31 2012 2013 2014
(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
The company recently discovered that in making physical counts of inventory, it had made the following errors: Inventory on December 31, 2012, is understated by $62,000, and inventory on December 31, 2013, is overstated by $32,000.
Required:
1. For each key financial statement figure (a), (b), (c), and (d) above prepare a table to show the adjustments necessary to correct the reported amounts.
2. What is the error in total net income for the combined three-year period resulting from the inventory errors?
3. Analyze the effects of inventory errors on current and future financial statements.