Assume that the ending inventory of a merchandising firm is overstated by $10,100. a. By how much and in what direction (overstated or understated) will the firm's cost of goods sold be misstated?

b. If this error is not corrected, what effect will it have on the subsequent periods operating income?

• Operating income will be too low.

• Operating income will be too high.

• No effect on operating income.

c. If this error is not corrected, what effect will it have on the total operating income of the two periods (the period in which there is an error and the subsequent period) combined?

• Operating income will be too low.

• Operating income will be too high.

• No effect on operating income.