Shockley Co. reported the following amounts in its financial statements:

In making the physical counts of inventory, the following errors were made:
€¢ Inventory on December 31, 2014: understated $70,000
€¢ Inventory on December 31, 2015: overstated $32,000
Required:
For each of the preceding financial statement items-(a), (b), (c), and (d)-prepare a schedule similar to the following and show the adjustments that would have been necessary to correct the reported amounts.

Analysis Component:
What is the error in the aggregate net income for the three-year period that resulted from the inventory errors? Explain why this result occurs. Also explain why the understatement of inventory by $70,000 at the end of 2014 resulted in an understatement of equity by the same amount that year.

Transcribed Image Text:

Financial Statements for Year Ended December 31 2015 2014 2016 (a) Cost of goods sold. 715,000 847,000 770,000 231,000 1,155,000 1,265,000 1,100,000 1,287,000 1,430,000 1,232,000 (b) Net income (c) Total current assets (d) Equity.1 220,000 275,000 2014 2015 2016 Cost of goods sold: Reported Adjustments: Dec. 31/14 error.. Dec. 31/15 error.... Corrected...