Question
During its first and second years of operations, Red Rover Company, a corporation using a periodic inventory system, made undiscovered errors in taking its year
During its first and second years of operations, Red Rover Company, a corporation using a periodic inventory system, made undiscovered errors in taking its year end inventories that overstated year 1 ending inventory by $320,000 and overstated year 2 ending inventory by $240,000. The combined effect of these errors on reported income is:
a. Year 1 Year 2 Year 3
Overstated overstated understated
$320,000 $560,000 $240,000
b. Overstated overstated not affected
$320,000 $240,000 ---
c. Understated understated not affected
$320,000 $560,000 ---
d. Overstated understated understated
$320,000 $80,000 $240,000
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