Navajo Company's financial statements show the followi
Question and Solution
Navajo Company's financial statements show the following. The company recently discovered that in making physical coun
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Navajo 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, 2016, is understated by $56,000 and inventory on December 31, 2017, is overstated by $20,000. 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 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 2016 results in an understatement of equity by the same amount in that year.
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