Great Foods Grocery reported the following comparative income statement for the years ended June 30, 2012 and 2011:

During 2012, Great Foods discovered that ending 2011 inventory was overstated by $4,500.
Requirements
1. Prepare corrected income statements for the two years.
2. State whether each year€™s net income€”before your corrections€”is understated or overstated and indicate the amount of the understatement oroverstatement.

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GREAT FOODS GROCERY Income Statements Years Ended June 30, 2012 and 2011 2012 2011 $ 139,000 $ 120,000 Sales revenue Cost of goods sold: Beginning inventory $12,000 $13,000 Net purchases 76,000 70,000 $89,000 Cost of goods available $82,000 Ending inventory (17,000) (13,000) Cost of goods sold Gross profit Operating expenses 69,000 $ 51,000 72,000 $ 67,000 23,000 18,000 $ 44,000 $ 33,000 Net income