i. Southwest Corporation was formed in 2005. Partial income statements (in thousands of dollars) for the first two years of operation are shown below: 2006 2005 $000 $000 $000 $000 Sales 80 60 Less: Cost of goods sold Beginning inventory 24 10 Add: Purchases (net) 64 50 Cost of goods available for sale 88 60 Less: Ending inventory 58 30 24 36 Gross profit 50 24 After the 2006 income statement was prepared, the firms accountant noted that the gross profit percentage varied significantly between the two years, and that the 2005 gross profit increased by $26,000 with only a $20,000 increase in sales. After an extensive review of the records, he found that inventory in the amount of $10,000 was correctly recorded as a purchase in 2005, but was omitted in error from the physical count taken on December 31, 2005. The 2006 ending inventory was determined to be correct. Required: a) What effect did this error have on the financial statements in 2005 and 2006? b) Prepare corrected income statements (in thousands of dollars) for the two years