Giselle Ltd. is a calendar-year corporation. Its financial statements for the years 2020 and 2019 contained errors as follows:

2020 2019

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

Assume that no correcting entries were made at December 31, 2019. Ignoring income taxes, by how much will retained earnings at December 31, 2020 be overstated or understated?

a) $2,000 understated

b) $1,000 overstated

c) $5,000 understated

d) $2,000 overstated