E7-19 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 Sales revenue Second Quarter $12,800 $18,100 Cost of goods sold Beginning inventory 4,400 $ 3,900 Purchases 3,300 12,300 Goods available for sale 7.700 16,200 Ending inventory 3,900 9,400 Cost of goods sold 3,800 6,800 Gross profit 9,000 11,300 Expenses 4,100 5200 Pretax income $ 4,900 $ 6,100 During the third quarter. It was discovered that the ending inventory for the first quarter should have been $4440. Required: 1. What effect old this error have on the combined pretax income of the two quarters? Increase by $540 Decrease by $540 No effect 2. Which quarters of any EPS amount were affected by this entor? First Quarter only Second Quarter only Both quarters Neither quarter 3. Prepare corrected Income statements for each quarter Answer is not complete. First Quarter Second Quarter Cost of goods sold 3. Prepare corrected income statements for each quarter. Answer is not complete. First Quarter Second Quarter Cost of goods sold: Goods available for sale 0 0 Cost of goods sold + 4. Prepare the schedule to reflect the comparative effects of the correct and incorrect amounts on the income statement 1st Quarter Incorrect Correct Error 2nd Quarter Incorrect Correct Error Beginning Inventory Ending inventory Cost of goods sold Gross profit Pretax income