A company recently determined that ending inventory was overstated last year by $22,500. Assuming that the current years ending inventory has been determined correctly, what do you estimate will be the impact on the current year financial statements since this error was not corrected?

Select answer from the options below

Both the income statement and balance sheet will require a disclosure about the error.

On the income statement, net income is understated, and on the balance sheet, assets and stockholders equity are not affected.

On the income statement, net income is not affected, and on the balance sheet, assets and stockholders equity are understated.

On the income statement, net income is understated, and on the balance sheet, assets and stockholders equity are understated.