Branson Electric prepared the following condensed income statements for two successive years:

2014 2015

Sales $2,000,000 $1,500,000

Cost of Goods Sold $1,250,000 $900,000

Gross profit on sales $750,000 $600,000

Operating Expenses $400,000 $350,000

Net Income $350,000 $250,000

At the end of 2014 (right hand column above), the inventory was understated by $40,000, but the error was not discovered until after the accounts had been closed and financial statements prepared at the end of 2015. The balance sheets for the two years showed owner