Natural Bite Grocery reported the following comparative income statements for the years ended June 30, 2017 and 2016:

During 2017, Natural Bite discovered that ending 2016 merchandise inventory was overstated by $5,000.
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 or overstatement.

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NATURAL BITE GROCERY Income Statements Years Ended June 30, 2017 and 2016 2017 2016 Sales Revenue Cost of Goods Sold: 137,000 122,000 Beginning Merchandise Inventory Net Cost of Purchases Cost of Goods Available for Sale Less: Ending Merchandise Inventory Cost of Goods Sold 14,000 79,000 93,000 19,000 $13,000 72,000 85,000 14,000 Gross Profit Operating Expenses Net Income 74,000 63,000 30,000 $33,000 71,000 51,000 19,000 S 32,000