The income statements for four consecutive years for Crown Company reflected the following summarized amounts:

Subsequent to development of these amounts, it has been determined that the physical inventory taken on December 31, 2010, 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
(b) After the correction.
3. What effect would the error have had on the income tax expense assuming a 30 percent averagerate?

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Sales revenue Cost of goods sold Gross profit Expenses Pretax income 2009 $60,000 39,000 21,000 15.000 6,000 2010 $63,000 43,000 20,000 6,000 S 4,000 2011 $65,000 44,000 21,000 16,000 5,000 2012 $68,000 46,000 22,000 18,000 $ 4,000