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