E7-19 (Algo) (Supplement 7B) Analyzing and Interpreting the Impact of an Inventory Error [LO 7-S2]

Dallas Corporation prepared the following two income statements:

	First Quarter		Second Quarter
Sales Revenue		$ 17,500		$ 21,000
Cost of Goods Sold
Beginning Inventory	$ 3,500		$ 4,500
Purchases	7,500		12,500
Goods Available for Sale	11,000		17,000
Ending Inventory	4,500		9,500
Cost of Goods Sold		6,500		7,500
Gross Profit		11,000		13,500
Operating Expenses		5,500		6,500
Income from Operations		$ 5,500		$ 7,000

During the third quarter, the companys internal auditors discovered that the ending inventory for the first quarter should have been $5,050. The ending inventory for the second quarter was correct.

Required:

1. What effect would the error have on total Income from Operations for the two quarters combined?
2. What effect would the error have on Income from Operations for each of the two quarters?
3. Prepare corrected income statements for each quarter. Ignore income taxes.