The income statement for Pruitt Company summarized for a four-year period shows the following:

An audit revealed that in determining these amounts, the ending inventory for 2017 was overstated by $18,000. The company uses a periodic inventory system.

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 average rate?

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2017 2018 2016 2019 Sales revenue Cost of goods sold Gross profit Expenses Pretax income Income tax expense (30%) Net income $2,700,000 $2,975,000 $2,025,000 $2,450,000 1,505,000 1,627,000 1,782,000 2,113,000 918,000 862,000 520,000 490,000 823,000 513,000 310,000 538,000 542,000 320,000 96,000 30,000 380,000 9.000 93,000 114,000 $ 217,000 $ 266,000 $ 224,000 21,000