$\lambda$-ring structure defined for a graded ring in Fulton–Lang's book Given a commutative ring $A$ with unity, Grothendieck used universal polynomials to define a special $\lambda$-ring structure on $\Lambda(A):=1+t\:A[[t]]$. Suppose $A$ is graded, say $A=\bigoplus_{i=0}^\infty A_i$. In Riemann–Roch Algebra, p. 11, Fulton and Lang define $\Lambda^{\circ}(A):=\{1+a_1t+a_2t^2\dotsb\mid a_i\in A_i\}$. Then on page 15 they state that since the product and $\lambda$ operations of $\Lambda(A)$ take $\Lambda^\circ(A)$ to itself, $\Lambda^\circ(A)$ becomes a $\lambda$-ring (without unit). They use this $\lambda$-ring structure of $\Lambda^\circ(A)$ in the proof of Theorem 3.1 on p. 16.
However, a straightforward computation shows that the product in $\Lambda(A)$ does not take $\Lambda^\circ(A)$ to itself. For example, if $1+a_1t+a_2t^2\dotsb$ and $1+b_1t+b_2t^2\dotsb$ are elements in $\Lambda^\circ(A)$, then their product using the product of $\Lambda(A)$ is given by $1+P_1(a_1;b_1)t+P_2(a_1,a_2;b_1,b_2)t^2+\dotsb$, where $P_1,P_2,\dotsc$ are certain universal polynomials. But $P_1(a_1;b_1)$ turns out to be $a_1b_1$ (see here, p. 22) and $a_1b_1$ is not in $A_1$, which shows the product is not in $\Lambda^\circ(A)$.
Question. Is there an error in the book? If yes, can it be fixed?
Edit. If you know other errors in this book that one should be aware of, please share them here.
 A: As others have said, the definition of the Chern ring there is wrong. But if memory serves, the only mistake is that they forgot to introduce the right multiplication law on the sets of power series they consider. The usual one in the theory is given by the universal formulas for exterior powers of tensor products $\Lambda^n(E\otimes F)$, but the one they want is for Chern classes $c_n(E\otimes F)$. When $n=1$ and $E$ and $F$ are line bundles, the first is multiplication and the second is addition. So it's obviously just an oversight, but one that can be confusing if you're seeing these things for the first time. (In the copy at U Chicago, someone mercifully added a warning note in the margin. There are a few obvious suspects.)
If you want a reference where the details are correct, I'd recommend SGA6. Grothendieck's introduction in expose 0 is very clear. Page 28 is where the discussion of the Chern ring starts. If I remember, Berthelot's expose goes into more depth, but I found Grothendieck's easier to read. Berthelot gets to the Chern ring on page 344. Atiyah-Tall is also generally a good reference, but I think they don't cover the Chern ring (although they do introduce the gamma-filtration).
A: Hazewinkel in Witt vectors. Part 1 warns about an error on page 15, second paragraph of this book. In fact he advises to "steer clear" of the book!
A: This is not an answer, as I don't exactly know what Fulton and Lang are trying to achieve with the $\lambda$-ring structure on $\Lambda^{\circ}\left(A\right)$ (I must admit that, while I had the quixotic intent to read and rewrite Fulton-Lang's Chapter I in the notes that you cited, I never found the resolve to walk that talk). I can confirm your counterexample.
What I think can be done (don't know if it is of any help) is the following: For every $i\in\mathbb N$, let $\Lambda^{i}_{\circ}\left(A\right)$ be the subset of $\Lambda\left(A\right)$ consisting of all formal power series of the form $1+a_1t+a_2t^2+a_3t^3+...$ with every $k$ satisfying $a_k\in A^{ik}$. Then, each such $\Lambda^{i} _ {\circ}\left(A\right)$ is an additive subgroup of $\Lambda\left(A\right)$, and the direct sum $\bigoplus\limits_{i\in\mathbb N}\Lambda^{i}_{\circ}\left(A\right)$ is well-defined and a sub-$\lambda$-ring of $\Lambda\left(A\right)$. (This is easy to prove by means of the usual grading on the ring of symmetric functions.) This sub-$\lambda$-ring, of course, is graded (and does have a $1$). I have no idea in how far it is what Fulton and Lang wanted.
We could also construct a greater graded sub-$\lambda$-ring of $\Lambda\left(A\right)$ by allowing $i$ rational (with $A^x$ defined as $0$ when $x\not\in\mathbb Z$), but then it will be graded by rationals. This greater graded sub-$\lambda$-ring is actually dense in $\Lambda\left(A\right)$ (in the usual topology on formal power series).
Does it make sense to replace $\Lambda^{\circ}\left(A\right)$ by $\Lambda^{\geq 1}_{\circ}\left(A\right)$ in the definition of a Chern class homomorphism? I don't know. It seems that most notions in Fulton-Lang are motivated by geometry, and without understanding it I am not the one to judge.
A: Just to save people some work, here are some problems with of Riemann-Roch Algebra pointed out by K. R. Coombes in his review on MathSciNet:

The beginner, however, may find the going rough at first. Chapters I and III in particular could have been written more carefully. Nowhere is there an unambiguous definition of "special'' λ-ring, even though the term is prominently introduced on p. 6. The reader should perhaps follow the authors' repeated advice to look at a paper by M. F. Atiyah and D. O. Tall [Topology 8 (1969), 253–297; MR0244387] for a "readable account", and also consult one of two papers by A. Grothendieck [Théorie des intersections et théorème de Riemann-Roch (SGA 6), Exposé 0, 1–19, Lecture Notes in Math., 225, Springer, Berlin, 1971; see MR0354655; Bull. Soc. Math. France 86 (1958), 137–154; MR0418782]. It is rarely made clear when the hypothesis "special" is used. It is not in the statement of Theorem I.2.1, for instance, but is in the proof. The statement of the graded splitting principle
on p. 49 leaves out one of the main points, namely, that there exists an extension which splits a given element. That these inaccuracies can be removed by reference to other sources should not relieve the authors of this book, which explicitly addresses itself to beginners and claims to be elementary and self-contained, from an obligation to meet standards of exposition higher than those applied to an ordinary advanced monograph.

A: I'm not sure what product you are thinking of on $\Lambda^0(A)$, but the one I'm thinking of, and the one that I believe is implicitly used in Fulton-Lang is the usual product on power series. So in particular, $(1+a_1 t+\cdots)\cdot (1+b_1 t+\cdots) = 1 + (a_1 + b_1)t + \cdots$.
There is no problem of grading.
