Hallam Company’s 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 overstated by $18,000 and Year 2 ending inventory is understated by $26,000.

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.

2. What is the total error in combined net income for the three-year period resulting from the inventory errors? Explain.

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For Year Ended December 31 (a) Cost of goods sold...... Net income... (b) (c) Total current assets (d) Total equity. Year 1 $207,200 175,800 276,000 314,000 Year 2 $213,800 212,270 277,500 315,000 Year 3 $197,030 184,910 272,950 346,000