E7-19 Analyzing and Interpreting the Impect of an Inventory Error LO7-7 Grants Corporation prepared the following two income statements (aimplifed for liustrative purposes: Sales revenue Cost of goods sold 11,000 $ 18,000 $4,000 3,000 7,000 3,800 3,800 13,000 16,800 Goods available for sale Ending inventory Cost of goods sold Gross profit 9,000 3,200 7,800 5,000 7,800 10,200 6,000 Pretax income $ 2,800 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? O Increase by $600 O Decrease by $600 O No effect 2. Which quarters (if any) EPS amount were affected by this error? O First Quarter only Second Quarter only O Both quarters O Neither quarter 3. Prepare corrected income statements for each quarter 3. Prepare corrected income statements for each quarter S12,200 18,800 Cost of goods sold 3,600 Beginning inventory Purchases 4.100 3,100 12,700 7,200 3,600 16,300 9,000 Goods available for sale 3,600 8,600 4,800 7,300 11,500 5,700 Cost of goods sold Gross loss ing expenses 3,800 5,800 ncome 4. Prepare the schedule to reflect the comparative effects of the correct and incorrect amounts on the income statement. 1st Quarter 2nd Quarter Incorrect Correct Error Incorrect Correct Error Beginning inventory Ending inventory Cost of goods sold Gross profit Pretax income