Seles Hardware Limited reported the following amounts for its cost of goods sold and inventory:
_____________________2018________2017
Cost of goods sold.......$168,000..........$154,000
Ending inventory.............37,000..............30,000
Seles made two errors: (1) Ending inventory for 2018 was overstated by $2,000 and (2) Ending inventory for 2017 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) income 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.