Grants Corporation prepared the following two income statements (simplified for illustrative purposes):

	First Quarter						Second Quarter
Sales revenue			$	12,100							$	18,700
Cost of goods sold
Beginning inventory	$ 3,800						$	3,700
Purchases	2,700							12,900
Goods available for sale	6,500							16,600
Ending inventory	3,700							9,700
Cost of goods sold				2,800								6,900
Gross profit				9,300								11,800
Expenses				4,200								5,500
Pretax income			$	5,100							$	6,300

During the third quarter, it was discovered that the ending inventory for the first quarter should have been $4,180.

Required:

1. What effect did this error have on the combined pretax income of the two quarters?

4. Prepare the schedule to reflect the comparative effects of the correct and incorrect amounts on the income statement.

Kirtland Corporation uses a periodic inventory system. At the end of the annual accounting period, December 31, the accounting records for the most popular item in inventory showed the following:

	Transactions	Units	Unit Cost
Beginning inventory, January 1		470	$6.00
Transactions during the year:
a.	Purchase, January 30	370	4.10
b.	Purchase, May 1	530	7.00
c.	Sale ($8 each)	(230)
d.	Sale ($8 each)	(770)

Required:

a. Compute the amount of goods available for sale.

b. & c. Compute the amount of ending inventory and cost of goods sold at December 31, under Average cost, First-in, first-out, Last-in, first-out and Specific identification inventory costing methods. For Specific identification, assume that the first sale was selected two-fifths from the beginning inventory and three-fifths from the purchase of January 30. Assume that the second sale was selected from the remainder of the beginning inventory, with the balance from the purchase of May 1. (Do not round intermediate calculations. Round "Average Cost and Specific Identification" answers to 2 decimal places.)

crease by $480 O Decrease by $480 No effect 2. Which quarters (if any) EPS amount were affected by this error? O First Quarter only O Second Quarter only O Both quarters O Neither quarte 3. Prepare corrected income statements for each quarter. First Quarter Cost of goods sold: 0 Goods available for sale Cost of goods sold Second Quarter