The income statement for Pruitt Company summarized for a four-year period shows the following:

		2016		2017		2018		2019
Sales revenue	$	2,028,000	$	2,456,000	$	2,714,000	$	2,983,000
Cost of goods sold		1,500,000		1,618,000		1,775,000		2,102,000
Gross profit		528,000		838,000		939,000		881,000
Expenses		480,000		494,000		519,000		528,000
Pretax income		48,000		344,000		420,000		353,000
Income tax expense (35%)		16,800		120,400		147,000		123,550
Net income	$	31,200	$	223,600	$	223,600	$	229,450

An audit revealed that in determining these amounts, the ending inventory for 2017 was overstated by $27,000. The company uses a periodic inventory system.

1.

Prepare the income statements to reflect the correct amounts, taking into consideration the inventory error.

2. Compute the gross profit percentage for each year before the correction and after the correction. (Round your answers to the nearest whole percent.)

3. What effect would the error have had on the income tax expense assuming a 35 percent average rate?

PRUITT COMPANY Income Statement For the Four-Year Period 2016 2017 2018 2019 Sales revenue Cost of goods sold Gross profit Expenses Pretax income Income tax expense (35%) Net income