Question

Grants Corporation prepared the following two income statements (simplified for illustrative purposes):

	First Quarter 2014						Second Quarter 2014
Sales revenue			$	12,700							$	19,300
Cost of goods sold
Beginning inventory	$ 3,600						$	3,300
Purchases	2,900							12,900
Goods available for sale	6,500							16,200
Ending inventory	3,300							9,100
Cost of goods sold				3,200								7,100
Gross profit				9,500								12,200
Expenses				4,300								5,800
Pretax income			$	5,200							$	6,400

During the third quarter, it was discovered that the ending inventory for the first quarter should have been $3,830.

	First Quarter		Second Quarter
Cost of goods sold:
Goods available for sale	0		0
Cost of goods sold

Prepare the schedule with the following headings to reflect the comparative effects of the correct and incorrect amounts on the income statement.

	1st Quarter				2nd Quarter
	Incorrect	Correct	Error		Incorrect	Correct	Error
Beginning inventory
Ending inventory
Cost of goods sold
Gross profit
Pretax income

Answer 1

	First Quarter		Second Quarter
Sales revenue		12,700		19,300
Cost of goods sold :
Beginning inventory	3,600		3,830
Purchases	2,900		12,900
Goods available for sale	6,500		16,730
Ending inventory	3,830		9,100
Cost of goods sold		2,670		7,630
Gross profit		10,030		11,670
Expenses		4,300		5,800
Pretax income		5,730		5,870

	1st Quarter				2nd Quarter
	Incorrect	Correct	Error		Incorrect	Correct	Error
Beginning inventory	3,600	3,600	0	No effect	3,300	3,830	530	decrease
Ending inventory	3,300	3,830	530	decrease	9,100	9,100	0	No effect
Cost of goods sold	3,200	2,670	530	increase	7,100	7,630	530	decrease
Gross profit	9,500	10,030	530	decrease	12,200	11,670	530	increase
Pretax income	5,200	5,730	530	decrease	6,400	5,870	530	increase