Garraway Ski Company mistakenly re̊corded purchases of inventory on account received during the last week of December 2011 as purchases during January of 2012 (this is called a purchases cut-off error). Garraway uses a periodic inventory system, and ending inventory was correctly counted and reported each year. Assuming that no correction was made in 2011 or 2012, indicate whether each of the following financial statement amounts will be understated, overstated, or correct.

1. Profit for 2011.

2. Profit for 2012.

3. Retained earnings at December 31, 2011.

4. Retained earnings at December 31, 2012.