Problem 5-6A (Algo) Analysis of inventory errors LO A2

Navajo Companys year-end financial statements show the following. The company recently discovered that in making physical counts of inventory, it had made the following errors: Year 1 ending inventory is understated by $65,000 and Year 2 ending inventory is overstated by $35,000.

For Year Ended December 31		Year 1		Year 2		Year 3
(a)	Cost of goods sold	$	740,000	$	970,000	$	805,000
(b)	Net income		283,000		290,000		265,000
(c)	Total current assets		1,262,000		1,375,000		1,245,000
(d)	Total equity		1,402,000		1,595,000		1,260,000

Required: 1. For each key financial statement figure(a), (b), (c), and (d) aboveprepare a table to show the adjustments necessary to correct the reported amounts. 2. What is the total error in combined net income for the three-year period resulting from the inventory errors?