The income statements for Graul Corporation for the three years ending in 2009 appear below:

During 2009, Graul discovered that the 2007 ending inventory had been misstated due to the following two transactions being recorded incorrectly:
a. A purchase return of inventory costing $63,000 was recorded twice.
b. A credit purchase of inventory made on 12/20 for $22,000 was not recorded. The goods were shipped F.O.B. shipping point and were shipped on 12/22/2007.

Required:
1. Was ending inventory for 2007 overstated or understated? By how much?
2. Prepare correct income statements for all three years.
3. Did the error in 2007 affect cumulative net income for the three-year period?
Explain your response.
4. Why was the 2009 net incomeunaffected?

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2009 2008 2007 Sales revenue Cost of goods sold Gross margin Operating expense Income from operations Other expenses Income before taxes Income tax expense (34%) Net income $4,643,200 2,475,100 $2,168,100 1,548,600 $ 619,500 137,300 $482,200 163,948 $ 318,252 $4,287,500 2,181,600 $2,105,900 1,428,400 $677,500 123,600 S 553,900 188,326 S 365,574 $3,647,900 2,006,100 $1,641,800 1,152,800 $ 489,000 112,900 $376,100 127,874 $ 248,226