Analyzing and Interpreting the Impact of an Inventory Error Grants 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 for 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 incomestatement:

First Quarter 2011 Second Quarter 2011 Sales revenue S11,000 $18,000 Cost of goods sold $ 3,800 $4,000 Beginning inventory Purchases 3,000 13,000 Goods available for sale 7,000 16,800 3,800 Ending inventory 9,000 Cost of goods sold 3,200 7,800 Gross profit Expenses 7,800 10,200 6.000 5,000 $ 2,800 $ 4,200 Pretax income