Nature Foods Grocery reported the following comparative income statements for the years ended June 30, 2019 and 2018:

During 2019, Nature Foods Grocery discovered that ending 2018 merchandise inventory was overstated by $5,500.
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 or overstatement.

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NATURE FOODS GROCERY Income Statements Years Ended June 30, 2019 and 2018 2019 2018 $ 134,000 $ 119,000 Net Sales Revenue Cost of Goods Sold: $ 14,000 $ 17,000 Beginning Merchandise Inventory Net Cost of Purchases 78,000 67,000 81,000 Cost of Goods Available for Sale 95,000 Less: Ending Merchandise Inventory 18,000 17,000 Cost of Goods Sold 77,000 64,000 57,000 Gross Profit 55,000 Operating Expenses 26,000 21,000 $ 31,000 $ 34,000 Net Income