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, 2010, is overstated by $70,000, and inventory on December 31, 2011, is understated by $55,000.

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 $70,000 at the end of 2010 results in an overstatement of equity by the same amount in thatyear.

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For Year Ended December 31 2011 2012 (a) Cost of goods sold...655.000 $ 957,000 $ 799.000 244.000 .251,000 360,000 1200,000 1387,000 520,000 250.000 (b) Net income... 225,000 277,000 (d) Total equity.. Figure: 2010 2011 2012 Reported amount... Adjustments for: 12/31/2010 error 12/31/2011 error.... Corrected amount