Question

Dallas Corporation prepared the following two income statements: First Quarter Second Quarter Sales Revenue $ 21,000 $ 25,200 Cost of Goods Sold Beginning Inventory $ 4,200 $ 5,200 Purchases 8,200 13,200 Goods Available for Sale 12,400 18,400 Ending Inventory 5,200 10,200 Cost of Goods Sold 7,200 8,200 Gross Profit 13,800 17,000 Operating Expenses 6,200 7,200 Income from Operations $ 7,600 $ 9,800

During the third quarter, the company’s internal auditors discovered that the ending inventory for the first quarter should have been $6,100. The ending inventory for the second quarter was correct.

	First Quarter						Second Quarter
Sales Revenue				$	21,000					$	25,200
Cost of Goods Sold
Beginning Inventory	$	4,200					$	5,200
Purchases		8,200						13,200
Goods Available for Sale		12,400						18,400
Ending Inventory		5,200						10,200
Cost of Goods Sold					7,200						8,200
Gross Profit					13,800						17,000
Operating Expenses					6,200						7,200
Income from Operations				$	7,600					$	9,800

Required:

What effect would the error have on total Income from Operations for the two quarters combined?

What effect would the error have on Income from Operations for each of the two quarters?

Prepare corrected income statements for each quarter. Ignore income taxes.

Answer 1