Martinez Supply, Co., shows the following financial statement data for 2010, 2011, and 2012.

Prior to issuing the 2012 statements, auditors found that the ending inventory for 2010 was understated by $7,000 and that the ending inventory for 201 2 was over-stated by $10,000. The ending inventory at December 31, 2011, was correct.

Requirements
1. State whether each year€™s net income before corrections is understated or over-stated and indicate the amount of the understatement or overstatement.
2. Prepare corrected income statements for the three years.
3. What is the impact on the 2012 income statement if the 2010 inventory error is leftuncorrected?

2011 (In thousands) Net Sales Revenue Cost of Goods Sold 2012 2010 $204 $183 Beginning Inventory 16 Net Purchases Cost of Goods Available 161 Ending Inventory Cost of Goods Sold s 19 112 131 16 s 6 132 138 19 145 23 115 60 36 S 24 119 64 46 S 18 138 Gross Profit Operating Expenses Net Income 40 $ 26