1. Inventory errors and income measurement. The income statements of Keagle Company for 20X3 and 20X4 follow.

20X3 20X4

Sales $100,000 $109,000

Cost of goods sold $62,000 $74,000

Gross profit $38,000 $35,000

Expenses $26,000 $22,000

Net Income $12,000 $13,000

A recent review of the accounting records discovered that the 20X3 ending inventory had been understated by $4,000. a. Prepare corrected 20X3 and 20X4 income statements. b. What is the effect of the error on ending owners equity for 20X3 and 20X4?