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

		2016		2017		2018		2019
Sales revenue	$	2,026,000	$	2,452,000	$	2,707,000	$	2,994,000
Cost of goods sold		1,489,000		1,609,000		1,779,000		2,097,000
Gross profit		537,000		843,000		928,000		897,000
Expenses		472,000		495,000		527,000		526,000
Pretax income		65,000		348,000		401,000		371,000
Income tax expense (40%)		26,000		139,200		160,400		148,400
Net income	$	39,000	$	208,800	$	240,600	$	222,600

An audit revealed that in determining these amounts, the ending inventory for 2017 was overstated by $26,000. 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.)

2016-2019 Before and after correction in %

3. What effect would the error have had on the income tax expense assuming a 40 percent average rate?

Income Tax Expense
2017
2018