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student P06 (1).xls - Student Name Class Problem 06-06A...

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Student Name: Class: Problem 06-06A NAVAJO COMPANY Adjustments to Correct Inventory Errors (a) Cost of goods sold: 2012 2013 2014 Reported $ 615,000 $ 957,000 $ 780,000 Adjustments: 12/31/2012 error (56,000) 56,000 12/31/2013 error 20,000 (20,000) Corrected $ 559,000 $ 1,033,000 $ 760,000 Correct! Correct! Correct! (b) Net income: 2012 2013 2014 Reported $ 230,000 $ 285,000 $ 241,000 Adjustments: 12/31/2012 error 56,000 (56,000) 12/31/2013 error (20,000) 20,000 Corrected $ 286,000 $ 209,000 $ 261,000 Correct! Correct! Correct! (c) Total current assets: 2012 2013 2014 Reported $ 1,255,000 $ 1,365,000 $ 1,200,000 Adjustments: 12/31/2012 error 56,000 12/31/2013 error (20,000) Corrected $ 1,311,000 $ 1,345,000 $ 1,200,000 Correct! Correct! Correct! (d) Equity: 2012 2013 2014 Reported $ 1,387,000 $ 1,530,000 $ 1,242,000 Adjustments: 12/31/2012 error 56,000 12/31/2013 error (20,000) Corrected $ 1,443,000 $ 1,510,000 $ 1,242,000 Correct! Correct! Correct! 2. What is the error in total net income for the combined three-year period resulting from the inventory errors? Explain At the end of the combined three-year period, the result of the total net income will not be affected by the errors 3. 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.
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