A company understated its ending inventory in Year 1 by $25,000 and also understated its ending inventory in Year 2 by $20,000. Neither error was discovered until Year 3. As a result, of these two errors, gross profit for Year 2 was:

Multiple Choice

a. Overstated by $5,000.

b. Understated by $45,000.

c. Understated by $20,000.

d. Overstated by $25,000.