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, 2016, is understated by $56,000 and inventory on December 31, 2017, is overstated by $20,000.

Required
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.

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 2016 results in an understatement of equity by the same amount in that year.

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For Year Ended December 31 (a) Cost of goods sold (b Net Income c) Total current assets (d) Total equity 2016 2017 2018 615,000 230,000 1,255,000 1,387,000 S 957,000 285,000 1.365,000 ,530,000 780,000 241,000 1,200,000 1,242,000 Flgure: Reported amount Adjustments for: 12/31/2016 error 2016 2017 2018 12/31/2017 error Corrected amount