Inventory Error The following condensed income statements and balance sheets are available for Planter Stores for a two-year period. (All amounts are stated in thousands of dollars.)

Before releasing the 2008 annual report, Planter’s controller learns that the inventory of one of the stores (amounting to $500,000) was counted twice in the December 31, 2007, inventory. The inventory was correctly counted in the December 31, 2008, inventory.
Required 1. Prepare revised income statements and balance sheets for Planter Stores for each of the two years. Ignore the effect of income taxes.
2. Compute the current ratio at December 31, 2007, before the statements are revised and compute the current ratio at the same date after the statements are revised. If Planter applied for a loan in early 2008 and the lender required a current ratio of at least 1 to 1, would the error have affected the loan? Explain your answer.
3. If Planter did not prepare revised statements before releasing the 2008 annual report, what would be the amount of overstatement or understatement of net income for the two-year period? What would be the overstatement or understatement of retained earnings at December 31, 2008, if revised statements were not prepared?
4. Given your answers to (2) and (3), does it matter if Planter bothers to restate the financial statements of the two years to correct the error? Explain your answer.

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Income Statements 2008 2007 Revenues $35,982 $26,890 Cost of goods sold 12,594 9,912 Gross profit $23,388 $16,978 Operating expenses 13,488 10,578 Net income $ 9,900 $ 6,400