Chapter 5, Problem 6PSB

Analysis of inventory errors $\text{A}2$
Hallam Company’s 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.
Check (1) Corrected net income: Year 1, $157,800; Year 2, $256,270; Year 3, $158,910


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