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The following partial income statements have been prepared for Darwin’s Video Inc.:
Subsequent to the preparation of these income statements, two inventory errors were found: (a) the 2016 ending inventory was overstated by $1,000 and (b) the 2017 ending inventory was understated by $1,000.
Required:
- Prepare corrected income statements for the three years, using the comparative format above.
- What is your explanation for the difference in the 2017 gross profit?
- Is the balance of retained earnings at the end of 2018 affected by the errors?
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