Dallas Corporation prepared the following two income statements (simplified for illustrative purposes):

During the third quarter, it was discovered that the ending inventory for the first quarter should have been $4,400.
Required: 1. What effect did this error have on the combined pretax income of the two quarters? Explain. 2. Did this error affect the EPS amounts for each quarter? ( See Chapter 5 discussion of EPS.) Explain. 3. Prepare corrected income statements for each quarter. 4. Set up a schedule with the following headings to reflect the comparative effects of the correct and incorrect amounts on the income statement:

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Sales revenue First Quarter 2004 $15.000 Second Quarter 2004 $18,000 Cost of goods sold Beginning inventory $ 3,000 $4,000 Purchases 7,000 12.000 Goods available for sale 10,000 16.000 Ending inventory 4,000 9.000 Cost of goods sold 6,000 7,000 Gross profit 9,000 11,000 Expenses 5.000 6.000 Pretax income $ 4,000 $ 5,000