Seles Hardware Limited reported the following amounts for its cost of goods sold and merchandise inventory:

_________________________________2015 __________2014

Cost of goods sold ....................... $168,000 ......... $154,000

Ending inventory ........................... 37,000 ............ 30,000

Seles made two errors:

(1) Ending inventory for 2015 was overstated by $2,000 and

(2) Ending inventory for 2014 was understated by $4,000.

Instructions

(a) Calculate the correct Ending inventory and cost of goods sold amounts for each year.

(b) Describe the impact of the error on

(1) Cost of goods sold,

(2) Profit before income tax,

(3) Assets,

(4) Liabilities, and

(5) Total shareholders' equity for each of the two years.

(c) Explain why it is important that Seles Hardware correct these errors as soon as they are discovered.