The Mason family operates a building supply store and counts the physical inventory once a year. The value assigned to the year-end inventory was $35 000. They failed to count the inventory on four shelves in the warehouse. As a result, the year-end financial statements were prepared with an incorrect valuation for ending inventory. A couple of weeks after the statements were prepared, the omission was discovered and reported to the company's accountant. The value of the inventory missed was $7 500. Required: 1. Create a mini-income statement including the incorrect ending inventory on the spreadsheet provided. Net sales for the period were $325 000; beginning inventory was $65 000; purchases were $24 000; and operating expenses were $161 000. 2. Create a revised income statement with the correct ending inventory figure. 3. Evaluate the effect of the omission on each of the following: a. cost of goods sold b. gross profit c. net income d. the balance sheet 4. Assume the accountant did NOT correct the error this year, and she permitted this error to be carried forward to the next accounting year. What would be the effect of this error on next year's: a. income statement? b. balance sheet? Net Sales Cost of Goods Sold Inventory, January 1 Purchases Cost of Goods Available for Sale Inventory, December 31 Mason Building Supplies Income Statement For the Year ended December 31, 2015 Cost of Goods Sold Gross Profit Operating Expenses Net Income Part 2: With correction Net Sales Cost of Goods Sold Gross Profit Income Statement For the Year ended December 31, 2015 Inventory, January 1 Purchases Mason Building Supplies Cost of Goods Available for Sale Inventory, December 31 Cost of Goods Sold $65,000.00 24,000.00 Operating Expenses Net Income $65,000.00 24,000.00 89,000.00 35,000.00 89,000.00 42,500.00 $325,000.00 54,000.00 Part 4 271,000.00 161,000.00 $110,000.00 $325,000.00 46,500.00 278,500.00 State effect as: overstated, understated, OR no effect Part 3 Effect of the omission on: a. the cost of goods sold b. gross profit c. net income d. the balance sheet total assets owner's equity 161,000.00 $117,500.00 a. income statement accounts beginning inventory the cost of goods sold gross profit net income b. balance sheet accounts total assets owner's equity Effect Overstatde Understated Understated Understated Understated Understated Effect Understated Understated Overstated Overstated No Effect Overstated Amount 7,500.00 7,500.00 7,500.00 7,500.00 7,500.00 7,500.00 Amount 7,500.00 7,500.00 7,500.00 7,500.00 7,500.00