Following are condensed income statements for Uncle Bill?s Home Improvement Center for the years ended December 31, 2020 and 2019:

Uncle Bill was concerned about the operating results for 2020 and asked his recently hired accountant, ?If sales increased in 2020, why was net income so much less than what it was in 2019?? In February of 2021, Uncle Bill got his answer: ?The ending inventory reported in 2019 was overstated by $30,000 for merchandise that we were holding on consignment on behalf of Kirk?s Servistar. We still keep some of their appliances in stock, but the value of these items was not included in the 2020 inventory count because we don?t own them.?

a. Recast the 2019 and 2020 income statements to take into account the correction of the 2019 ending inventory error.

b. Calculate the combined net income for 2019 and 2020 before and after the correction of the error. Explain to Uncle Bill why the error was corrected in 2020 before it was actually discovered in 2021.

c. What effect, if any, will the error have on net income and stockholders? equity in 2021?

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2020 2019 Sales Cost of goods sold S760,000 $719,000 (482,000) (586,000) Gross profit . $237,000 (143,000) S174,000 Operating expenses. (117,000) $ 94,000 Net income (ignoring income taxes) $ 57,000