If the beginning merchandise inventory was understated $8,000 in 2014, purchases were overstated $6,000 in 2014 and the ending merchandise inventory was overstated $10,000 in 2015. Assume that no corrections were made during 2014 or 2015. All other items in the income statement were correct.

Questions:

1. What affect does this have on the cost of goods sold and net income for 2014 in dollars understated or overstated?

1. What affect does this have on net income and retained earnings in dollars understated or overstated for 2015?