Grants Corporation prepared the following two income statements (simplified for illustrative purposes): Second Quarter $ 19,500 First Quarter $ 12,900 $ 4,000 2,600 6,600 3,500 3,100 9,800 4,900 $ 4,900 Sales revenue Cost of goods sold Beginning inventory Purchases Goods available for sale Ending inventory Cost of goods sold Gross profit Expenses Pretax income $ 3,500 12,000 15,500 9,900 5,600 13,900 5 300 $ 8,600 During the third quarter, it was discovered that the ending inventory for the first quarter should have been $3,960. Required: 1. What effect did this error have on the combined pretax income of the two quarters? Increase by $460 Decrease by $460 No effect 2. Which quarter's (if any) EPS amount were affected by this error? OOO First Quarter only Second Quarter only Both quarters Neither quarter 3. Prepare corrected income statements for each quarter. First Quarter Second Quarter Cost of goods sold Goods available for sale 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 Correct 2nd Quarter Correct Incorrect Error Incorrect Error Beginning inventory Ending inventory Cost of goods sold Gross profit Protax income