Nikita 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, 2008, is understated by $56,000, and inventory on December 31, 2009, is overstated by $25,000.

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 $56,000 at the end of 2008 results in an understatement of equity by the same amount in that year.

Transcribed Image Text:

For Year Ended December 31 2600 2009 2010 (a) (b) Net income (c) Total current assets. . .. (d) Total equity . . Cost of goods sold 623,000 955,000 780,000 275,000 250,000 ,247,000 360,000 230,000 230,000 1,387,000 ,580,000 ,245,000 Figure: Reported amount Adjustments for: 12/31/2008 error.. 2008 2009 2010 12/31/2009 error..*. Corrected amount.