E7-15 (Static) Analyzing and Interpreting the Impact of an Inventory Error LO7-5 Grants Corporation prepared the following two income statements (simplified for illustrative purposes): First Quarter Second Quarter Sales revenue Cost of goods sold Beginning inventory Purchases $ 11,000 $ 18,000 $ 4,000 $ 3,800 3,000 Goods available for sale 7,000 Ending inventory 3,800 13,000 16,800 9,000 Cost of goods sold 3,200 Gross profit 7,800 Expenses 5,000 7,800 10,200 6,000 $ 2,800 Pretax income $ 4,200 During the third quarter, it was discovered that the ending inventory for the first quarter should have been $4,400. Required: 1. What effect did this error have on the combined pretax income of the two quarters?> 2. Which quarter's or quarters' (if any) EPS amounts were affected by this error? 3. Prepare corrected income statements for each quarter. 4. Prepare the schedule to reflect the comparative effects of the correct and incorrect amounts on the income statement Required 1 and 2 Required 3 Required 4 1. What effect did this error have on the combined pretax income of th 2. Which quarter's or quarters' (if any) EPS amounts were affected by 1. Effect on combined pretax income 2. Quarter(s) Required 1 and 2 Required 1 and 2 Required 3 Required 4 Prepare corrected income statements for each quarter. Cost of goods sold: Goods available for sale Cost of goods sold First Quarter Second Quarter < Required 1 and 2 Required 4 > Required 1 and 2 Required 3 Required 4 Prepare the schedule to reflect the comparative effects of the correct and incorrect amounts on the income statement. Beginning inventory Ending inventory Cost of goods sold Gross profit Pretax income Incorrect First Quarter Correct Error $ 4,000 $ 4,000 Incorrect Second Quarter Correct Error 9,000 9,000 < Required 3 Required 4 >