E7-19 (Algo) Analyzing and Interpreting the Impact of an Inventory Error L07-7 Grants Corporation prepared the following two income statements (simplified for illustrative purposes): First Quarter $ 12,400 Second Quarter $18,500 $ 3,700 2,600 Sales revenue Cost of goods sold Beginning inventory Purchases Goods available for sale Ending inventory Cost of goods sold Gross profit Expenses Pretax income $ 3,700 12,900 16,600 9,400 6,300 3,700 2,600 9,800 4,800 $ 5,000 7,200 11,300 5,800 $ 5,500 During the third quarter, it was discovered that the ending inventory for the first quarter should have been $4,130. 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. Complete this question by entering your answers in the tabs below. Req 1 and 2 Reg 3 Reg 4 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? 1. Effect on combined pretax income 2. Quarter(s) E7-19 (Algo) Analyzing and Interpreting the Impact of an Inventory Error L07-7 Grants Corporation prepared the following two income statements (simplified for illustrative purposes): First Quarter $12,400 Second Quarter $18,500 $ 3,700 2,600 6,300 $ 3,700 12,900 16,600 Sales revenue Cost of goods sold Beginning inventory Purchases Goods available for sale Ending inventory Cost of goods sold Gross profit Expenses Pretax income 3,700 9,400 2,600 9,800 4,800 $ 5,000 7,200 11,300 5,800 $ 5,500 During the third quarter, it was discovered that the ending inventory for the first quarter should have been $4,130. 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 Complete this question by entering your answers in the tabs below. Req 3 Reg 4 and 2 Prepare the schedule to reflect the comparative effects of the correct and incorrect amounts on the income statement. 1st Quarter Incorrect Correct Error $ 3,700 $ 3,700 No error 2nd Quarter Incorrect Correct 9,400 9,400 No error Beginning inventory Ending inventory Cost of goods sold Gross profit Pretax income Req3 Reg 4