Analyzing and Interpreting the Effects of Inventory Errors
The income statements for four consecutive years for Colca Company reflected the following summarized amounts:

Subsequent to development of these amounts, it has been determined that the physical inventory taken on December 31, 2012, was understated by $2,000.
Required:
1. Recast the income statements to reflect the correct amounts, taking into consideration the inventory error.
2. Compute the gross profit percentage for each year ( a ) before the correction and ( b ) after the correction.
3. What effect would the error have had on the income tax expense, assuming a 30 percent averagerate?

2011 2012 2014 2013 Sales revenue Cost of goods sold Gross profit Expenses Pretax income $60,000 $63,000 43,000 $65,000 44,000 $68,000 39,000 21,000 20,000 22,000 19,000 21,000 16.000 17,000 17,000 $ 5,000 $ 3,000 $ 4,000 $ 3,000