Nature Foods Grocery reported the following comparative income statements for the years ended June 30, 2025 and 2024:

During 2025, Nature Foods Grocery discovered that ending 2024 merchandise inventory was overstated by $5,500.

Requirements
1. Prepare corrected income statements for the two years.
2. State whether each year’s net income—before your corrections—is understated or overstated, and indicate the amount of the understatement or overstatement.

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Net Sales Revenue Cost of Goods Sold: NATURE FOODS GROCERY Income Statements Years Ended June 30, 2025 and 2024 2025 Beginning Merchandise Inventory Plus: Net Cost of Inventory Purchased Cost of Goods Available for Sale Less: Ending Merchandise Inventory Cost of Goods Sold Gross Profit Operating Expenses Net Income $ 17,000 78,000 95,000 18,000 $ 134,000 77,000 57,000 26,000 $ 31,000 $ 14,000 67,000 81,000 17,000 2024 $ 119,000 64,000 55,000 21,000 $ 34,000