Question

Navajo Company's 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 $63,000, and Year 2 ending inventory is overstated by $33,000. $ $ For Year Ended December 31 (a) Cost of goods sold (b) Net income (c) Total current assets (d) Total equity Year 1 738,000 281,000 1,260,000 1,400,000 Year 2 Year 3 968,000 $ 803,000 288,000 263,000 1,373,000 1,243,000 1,593,000 1,258,000 Required: 1. For each key financial statement figure-(a), (b), (c), and (d) below-prepare a 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? Complete this question by entering your answers in the tabs below. Required 1 Required 2 For each key financial statement figure-(a), (b), (c), and (d) below-prepare a table to show the adjustments necessary to correct the reported amounts. (Amounts to be deducted must be entered with a minus sign.) Year 1 Year 2 Year 3 Cost of goods sold: Reported amount Adjustments for: 12/31/Year 1 error 12/31/Year 2 error S 0 $ 0 Corrected amount Net income: Reported amount Adjustments for: 12/31/Year 1 error 12/31/Year 2 error $ 0 $ 0 $ 0 Corrected amount Total current assets: Reported amount Adjustments for: 12/31/Year 1 error 12/31/Year 2 error $ 0 $ 0 $ Corrected amount Equity: Reported amount Adjustments for: 12/31/Year 1 error 12/31/Year 2 error Corrected amount $ 0 $ 0 $ 0 Required 1 Required 2 >

Answer 1

Required 1

		Year 1	Year 2	Year 3
Cost of goods sold:
Reported amount		$738,000	$968,000	$803,000
Adjustment for	12/31/Year 1 error	($63,000)	$63,000	$0
	12/31/Year 2 error	$0	$33,000	($33,000)
Corrected amount		$675,000	$1,064,000	$770,000
Net income:
Reported amount		$281,000	$288,000	$263,000
Adjustment for	12/31/Year 1 error	$63,000	($63,000)	$0
	12/31/Year 2 error	$0	($33,000)	$33,000
Corrected amount		$344,000	$192,000	$296,000
Total current assets:
Reported amount		$1,260,000	$1,373,000	$1,243,000
Adjustment for	12/31/Year 1 error	$63,000	($63,000)	$0
	12/31/Year 2 error	$0	$33,000	($33,000)
Corrected amount		$1,323,000	$1,343,000	$1,210,000
Equity:
Reported amount		$1,400,000	$1,593,000	$1,258,000
Adjustment for	12/31/Year 1 error	$63,000	($63,000)	$0
	12/31/Year 2 error	$0	$33,000	($33,000)
Corrected amount		$1,463,000	$1,563,000	$1,225,000

Required 2.

For the combined three year period the net effect will be a net zero effect to income because of the offset of corrections offsetting the errors year over year. Combined net income will be $832,000 overthe three year period but the information will be posted in the correct period.

_____×_____

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