Wild, John; Shaw, Ken; and Chiappetta, Barbara Fundamental Accounting Principles, (21st ed., Chicago, Ill.: Richard D. Irwin, Inc.), 2013. IBSN13 978-0-07-802558-7, IBSN10 0-07-802558-3

Problem 6-6A, p. 266

Navajo Companys 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, 2012, is understated by $56,000, and inventory on December 31, 2013, is overstated by $20,000.

For Year Ended December 31			2012		2013		2014
(a) Cost of goods sold			$615,000		$957,000		$780,000
(b) Net income			230,000		285,000		241,000
(c) Total current assets			1,255,000		1,365,000		1,200,000
(d) Total equity			1,387,000		1,530,000		1,242,000

For each key financial statement figure(a), (b), (c), and (d) aboveprepare a table similar to the following to show the adjustments necessary to correct the reported amounts.

Figure:				2012		2,013		2,014
Reported amount				________		________		________
Adjustments for:		12/31/2012 error		________		________		________
		12/3/2013 error..		________		________		________
Corrected amount..				________		________		________

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

Explain why the understatement of inventory by $56,000 at the end of 2012 results in an understatement of equity by the same amount in that year.