EFFECTS OF AN ERROR IN ENDING INVENTORY Waymire Company prepared the partial income statements presented below for 2009 and 2008:

2009 2008 Sales revenue $538,200 $483,700 Cost of goods sold:

Beginning inventory $ 39,300 $ 32,100 Purchases 343,200 292,700 Cost of goods available for sale $382,500 $324,800 Ending inventory 46,800 335,700 39,300 285,500 Gross margin $202,500 $198,200 Operating expenses 167,200 151,600 Income before taxes $ 35,300 $ 46,600 During 2010, Waymire’s accountant discovered that ending inventory for 2008 had been overstated by $7,900.

Required:

. Prepare corrected income statements for 2009 and 2008.

. Prepare a schedule showing each financial statement item affected by the error and the amount of the error for that item. Indicate whether each error is an overstatement (þ) or an understatement (–).

Exercise