Question

Dallas Corporation prepared the following two income statements:

	First Quarter						Second Quarter
Sales Revenue				$	17,000					$	20,400
Cost of Goods Sold
Beginning Inventory	$	3,400					$	4,400
Purchases		7,400						12,400
Goods Available for Sale		10,800						16,800
Ending Inventory		4,400						9,400
Cost of Goods Sold					6,400						7,400
Gross Profit					10,600						13,000
Operating Expenses					5,400						6,400
Income from Operations				$	5,200					$	6,600

  

During the third quarter, the company’s internal auditors discovered that the ending inventory for the first quarter should have been $4,900. The ending inventory for the second quarter was correct.  

Required:

1. What effect would the error have on total Income from Operations for the two quarters combined?
2. What effect would the error have on Income from Operations for each of the two quarters?
3. Prepare corrected income statements for each quarter. Ignore income taxes.

Answer 1