At the end of the current year, a company overstated prepaid insurance by $66,000 and understated supplies expense by $116,000. Its effective tax rate is 35%. As a result of this error, net income is:

Overstated by $118,300.

Understated by $118,300.

Understated by $32,500.

Overstated by $32,500.

Please show how your awnser was obtained, all methods used must be in accordence with GAAP and FASB.