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

During 2012, Earth Foods discovered that ending 2011 inventory, as previously reported, was overstated by $3,500.

Requirements
1. Prepare the corrected comparative income statement for the two-year period complete with a heading for the statement.
2. What was the effect of the error on net income for the two years combined? explain your answer.

Transcribed Image Text:

EARTH FOODS GROCERY Income Statements Years Ended June 30, 2012 and 2011 2012 2011 Sales revenue $ 142,000 $ 121,000 Cost of goods sold: Beginning inventory $15,000 $10,000 Net purchases 73,000 66,000 Cost of goods available 88,000 76,000 Ending inventory (19,500) (15,000) Cost of goods sold 68,500 61,000 Gross profit 73,500 60,000 Operating expenses 26,000 24,000 Net income $ 47,500 $ 36,000