Stover Company’s financial statements report the following. Stover recently discovered that in mak¬ ing physical counts of inventory, it had made the following errors: Inventory on December 31, 2004, is understated by $66,000, and inventory on December 31, 2005, is overstated by $30,000.

Required 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 in¬ ventory errors? Explain.
3. Explain why the understatement of inventory by $66,000 at the end of 2004 results in an under¬ statement of equity by the same amount in that year.

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Key Figures (a) Cost of goods sold (b) Net income. (c) Total current assets (d) Total equity For Year Ended December 31 2004 2005 2006 $ 715,000 $ 847,000 $770,000 220,000 275,000 231,000 1,155,000 1,265,000 1,100,000 1,287,000 1,430,000 1,232,000