(L. OBJ. 6) Correcting an inventory error—two years [15-20 min] Earth Foods Grocery rep...

(L. OBJ. 6) Correcting an inventory error—two years [15-20 min]

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

During 2012, Earth Foods discovered that ending 2011 inventory, as previously reported, was overstated by $3,500.

Requirements

1. Prepare the corrected comparative income statement for the two-year period, complete with a heading for the statement.

2. What was the effect of the error on net income for the two years combined? Explain your answer: