Cabinet Concepts year end is December 31. Its financial statements for the years 2021 and 2022 contained an error as follows:

2021 2022

Ending inventory $3,000 overstated $2,000 overstated

Depreciation expense $4,000 understated $8,000 overstated

Assume that no correcting entries were made at December 31, 2021. Ignoring income taxes, by how much will retained earnings at December 31, 2022 be overstated or understated? Show your work.

a. $5,000 understated

b. $3,000 overstated

c. $3,000 understated

d. $17,000 understated