Doubletree Companys financial statements show the following. The company recently discovered that in making physical counts of

Doubletree 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, 2010, is understated by $50,000, and inventory on December 31, 2011, 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.

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 $50,000 at the end of 2010 results in an understatement of equity by the same amount in thatyear.

Transcribed Image Text:

For Year Ended December 31 2010 2011 2012 (a) Cost of goods sold (b) Net income268.000 275,000 250,000 (c) Total current asset1247,000 ,360,000 230,000 (d) Total equity 725,000 $ 955.000 790.000 Figure: 2010 2011 2012 Reported amount. Adjustments for: 12/3/2010 error. /31/2011 error Corrected amount.. .