Grants Corporation prepared the following two income statements (simplified for illustrative purposes): First Quarter Second Quarter Sales revenue $ 11,600 $ 19,700 Cost of goods sold Beginning inventory $ 3,600 $ 4,000 Purchases 2,600 12,800 Goods available for sale 6,200 16,800 Ending inventory 4,000 9,200 Cost of goods sold 2,200 7,600 Gross profit 9,400 12,100 Expenses 4,100 5,600 Pretax income $ 5,300 $ 6,500 During the third quarter, it was discovered that the ending inventory for the first quarter should have been $4,420. Required: 1. What effect did this error have on the combined pretax income of the two quarters? 2. Which quarter's or quarters' (if any) EPS amounts were affected by this error? 3. Prepare corrected income statements for each quarter. 4. Prepare the schedule to reflect the comparative effects of the correct and incorrect amounts on the income statement.

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter15: Financial Statement Analysis

Section: Chapter Questions

Problem 56P: The following selected information is taken from the financial statements of Arnn Company for its...

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

	First Quarter	Second Quarter
Sales revenue		$	11,600			$	19,700
Cost of goods sold
Beginning inventory	$ 3,600			$	4,000
Purchases	2,600				12,800
Goods available for sale	6,200				16,800
Ending inventory	4,000				9,200
Cost of goods sold			2,200				7,600
Gross profit			9,400				12,100
Expenses			4,100				5,600
Pretax income		$	5,300			$	6,500

During the third quarter, it was discovered that the ending inventory for the first quarter should have been $4,420.

Required:

1. What effect did this error have on the combined pretax income of the two quarters?

2. Which quarter's or quarters' (if any) EPS amounts were affected by this error?

3. Prepare corrected income statements for each quarter.

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

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