Watson 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, 2008, is overstated by $64,000, and inventory on December 31, 2009, is understated by $35,000.

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.

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 overstatement of inventory by $64,000 at the end of 2008 results in an overstatement of equity by the same amount in that year.

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For Year Ended December 3 2008 2009 2010 (a) Cost of goods sold (b) Net income . . . . $ 615,000957,000 786,000 244,000 1,251,000 360,000 ,265,000 1,250,000 225,000 285,000 (d) Total equity 387,000 ,520,000 Figure: 2008 2009 2010 Reported amount Adjustments for: 12/31/2008 error . . 12/31/2009 error . Corrected amount