Required information [The following information applies to the questions displayed below.] The income statement for Pruitt Company summarized for a four-year period shows the following: Sales revenue Cost of goods sold 2016 $ 2,025,000 2017 $2,450,000 2018 $2,700,000 1,505,000 1,627,000 1,782,000 520,000 823,000 918,000 490,000 513,000 538,000 30,000 310,000 380,000 9,000 93,000 114,000 2019 $ 2,975,000 Gross profit Expenses Pretax income Income tax expense (30%) Net income $ 21,000 $ 217,000 $ 266,000 $ 2,113,000 862,000 542,000 320,000 96,000 224,000 An audit revealed that in determining these amounts, the ending inventory for 2017 was overstated by $18,000. The company uses a periodic inventory system. Required: 1. Prepare the income statements to reflect the correct amounts, taking into consideration the inventory error. PRUITT COMPANY Sales revenue Cost of goods sold Gross profit Expenses Pretax income Income tax expense (30%) Net income INCOME STATEMENT For the Four-Year Period 2016 2017 2018 2019 2. Compute the gross profit percentage for each year before the correction and after the correction. (Round your answers to the nearest whole percent.) 2016 2017 2018 2019 Before correction % % % % After correction % % % 4% 3. What effect would the error have had on the income tax expense assuming a 30 percent average rate? Income Tax Expense 2017 Overstatement 2018 Understatement