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 $4,200.

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? 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 incomestatement:

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First Quarter 2010Second Quarter 2010 $18,000 Sales revenue $11,000 Cost of goods sold Beginning inventory Purchases Goods available for sale Ending inventory Cost of goods sold $ 4,000 3,000 7.000 3.800 S 3,800 13.000 16,800 9.000 3.200 7.800 5,000 $ 2.800 7.800 10,200 6,000 S 4.200 Gross profit Expenses Pretax income I Quarter d Quarter Income Statement Item Incorrect CorretErrrIncorrectCorrect Error