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: Inventory on December 31, 2012, is overstated by $ 18,000, and inventory on December 31, 2013, is understated by $ 26,000.
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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.
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Analysis Component:
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 overstatement of inventory by $ 18,000 at the end of 2012 results in an overstatement of equity by the same amount in thatyear.