Question: Navajo Company s financial statements show the following The company recently

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: Inventory on December 31, 2012, is understated by $ 56,000, and inventory on December 31, 2013, is overstated by $ 20,000.

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

Analysis Component
2. What is the error in total net income for the combined three- year period resulting from the inventory errors? Explain.
3. Explain why the understatement of inventory by $ 56,000 at the end of 2012 results in an understatement of equity by the same amount in thatyear.
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  • CreatedNovember 26, 2013
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