Correcting an inventory error—two years [15-20 min]Great Foods Grocery reported the follow...

Correcting an inventory error—two years [15-20 min]

Great Foods Grocery reported the following comparative income statement for the years ended June 30, 2012 and 2011:

During 2012, Great Foods discovered that ending 2011 inventory was overstated by $4,500.

Requirements

1. Prepare corrected income statements for the two years.

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2. State whether each year’s net income—before your corrections—is understated or overstated and indicate the amount of the understatement or overstatement.