During 2018, Wayne Corporation discovered that its ending inventories reported on its financial statements were misstated by the following amounts: 2016 ending inventory overstated by $72,000; 2017 ending inventory understated by $100,000. Wayne uses the periodic inventory system and the FIFO cost method. Determine the effect of these errors on retained earnings at January 1, 2018, before any adjustments:

a) Retained earnings at January 1, 2018 is understated by $100,000. b) Retained earnings at January 1, 2018 is understated by $20,000. c) Retained earnings at January 1, 2018 is overstated by $20,000. d) Retained earnings at January 1, 2018 is overstated by $100,000.