$7-77$ Inventory Errors

IBM had inventories of $$2\mathrm{.}6$ billion at December $31,2011,$ and $$2\mathrm{.}5$ billion a year earlier.

Suppose the beginning inventory for fiscal $2011$ had been overstated by $$20$ million because

of errors in physical counts. There were no other inventory errors. Which items in the finan$-$

cial statements would be incorrect and by how much? Use O for overstated, U for understated,

and $N$ for not affected. Assume a $40\%$ tax rate and state dollar amounts in millions.

What is the dollar effect of the inventory error on retained earnings at the end of fiscal $2011$

and $2010?$