Inventory Errors, 3 Years (Alternate is 7-59.) The Collins Company had the data at the top of p. 325 for three successive years ($ in millions). In early 20X4, a team of internal auditors discovered that the ending inventory for 20X1 had been overstated by $10 million. Furthermore, the ending inventory for 20X3 had been understated by $5 million. The ending inventory for December 31, 20X2, was correct. 1. Which items in the income statement are incorrect and by how much? Prepare a tabulation cover- ing each of the 3 years. 2. Is the amount of retained earnings correct at the end of 20X1, 20X2, and 20X3? If it is erroneous, indicate the amount and whether it is overstated (O) or understated (U).

20X3 20X2 20X1 Sales Deduct: Cost of goods sold Beginning inventory Purchases Cost of goods available for sale Ending inventory Cost of goods sold Gross profit Other expenses Income before income taxes Income tax expense at 40% Net income