Reference no: EM132359680

Question

Grants Corporation prepared the following two income statements (simplified for illustrative purposes):

First Quarter 2014 Second Quarter 2014 Sales revenue $12,500 $19,600 Cost of goods sold Beginning inventory$ 3,700 $3,100 Purchases 2,800 12,100 Goods available for sale6,500 15,200 Ending inventory3,100 9,500 Cost of goods sold 3,400 5,700 Gross profit 9,100 13,900 Expenses 4,700 5,700 Pretax income $4,400 $8,200

During the third quarter, it was discovered that the ending inventory for the first quarter should have been $3,540.

Required:

1. What effect did this error have on the combined pretax income of the two quarters?

Increase 440

Decrease 440NE

2. Did this error affect the EPS amounts for each quarter?

Yes

No

3. Prepare corrected income statements for each quarter.

4. Prepare the schedule with the following headings to reflect the comparative effects of the correct and incorrect amounts on the income statement.