EFFECTS OF AN INVENTORY ERROR The income statements for Graul Corporation for the three years ending in 2009 appear below:

2009 2008 2007 Sales revenue $4,643,200 $4,287,500 $3,647,900 Cost of goods sold 2,475,100 2,181,600 2,006,100 Gross margin $2,168,100 $2,105,900 $1,641,800 Operating expense 1,548,600 1,428,400 1,152,800 Income from operations $ 619,500 $ 677,500 $ 489,000 Other expenses 137,300 123,600 112,900 Income before taxes $ 482,200 $ 553,900 $ 376,100 Income tax expense (34%) 163,948 188,326 127,874 Net income $ 318,252 $ 365,574 $ 248,226 During 2009, Graul discovered that the 2007 ending inventory had been misstated due to the following two transactions being recorded incorrectly:

a. A purchase return of inventory costing $63,000 was recorded twice.

b. A credit purchase of inventory made on 12/20 for $22,000 was not recorded. The goods were shipped F.O.B. shipping point and were shipped on 12/22/2007.

Required:
. Was ending inventory for 2007 overstated or understated? By how much?
. Prepare correct income statements for all three years.
. Did the error in 2007 affect cumulative net income for the three-year period?
Explain your response.