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Ancelotti, Inc. is a calendar-year corporation. Its financial statements for the years2011 and 2010 contained errors as follows: 1) Ending Inventory for 2011 is overstated

Ancelotti, Inc. is a calendar-year corporation. Its financial statements for the years2011 and 2010 contained errors as follows:

1) Ending Inventory for 2011 is overstated by $3,000

2) Ending Inventory for 2010 is overstated by $8,000

3) Salaries expense for 2011 is understated by $2,000

4) Salaries expense for 2010 is overstated by $6,000No correcting entries were made at December 31, 2010. Assuming no taxes, byhow much will retained earnings at December 31, 2011 be overstated orunderstated?

a. $1,000 understated

b. $5,000 overstated

c. $5,000 understated

d. $9,000 understated

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