1) Janes Company incorrectly omitted $50,000 of merchandise from its 2010 ending inventory. In addition, a merchandise purchase of $20,000 was incorrectly recorded as $2,000 in the purchases account. As a result of these errors, 2010 income (before taxes) is:

a) overstated by $32,000.

b) understated by $32,000.

c) overstated by $68,000

d) understated by $68,000.

2) The Hawkins Company had beginning inventory of $4,500 at cost and $5,000 at retail, purchases of $30,000 at cost and $40,000 at retail, retail sales of $36,000, markups of $2,000, and markdowns of $1,000. The cost of ending inventory using average cost under the retail method is:

a) $7,700.

b) $4,000.

c) $34,500.

d) $7,500.