Fact pattern: An audit of Brasilia Company has revealed the following four errors that have occurred but have not been corrected:

1. Inventory at December 31, Year 2 -- $40,000, Understated

2. Inventory at December 31, Year 3 -- $15,000, Overstated

3. Depreciation for Year 2 -- $7,000, Understated

4. Accrued expenses at December 31, Year 3 -- $10,000, Understated

The errors cause the reported net income for the year ending December 31, Year 3, to be

Multiple Choice

• Overstated by $72,000.

• Overstated by $65,000.

• Understated by $28,000

• Understated by $45,000