The Canon is built from all extant writings. It contains all concepts that do not conflict with either tone or letter of the rest of the canon: for example, we cannot consider The Hobbit strictly canonical due to anomalies (or abandoned ideas). With regard to The Hobbit, it is important to view the story as an embellished or fanciful adventure novel from Bilbo's perspective. When a conflict does arise, the latest writing rules, unless the concepts presented therein are underdeveloped to the point that they create irreconcilable holes in the established mythos. In which case we must consider the ideas to be possible alternatives and investigate the ramifications of accepting them as canonical.
IMO
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