Inventory Error The following selected financial information is from Taylor and Company. Year 1 Year 2 Beginning inventory $14,300 $14,000 Ending inventory 14,000 13,400 Cost of goods sold 67,000 73,500 It was determined that due to errors in the physical inventory count, the Year 1 ending inventory was overstated by $2,300. At the end of Year 2, items costing $500 were in transit and not included in the physical inventory count; however, ownership had transferred to Taylor and Company. a. Compute the correct cost of goods sold for both years.

b. What is the effect on net income for both years? Determine the amount and indicate whether it was overstated or understated. Enter all amounts as positive numbers.

	Cost of Goods sold	Net Income
	Amount	Effect	Amount	Effect
Year 1	Answer	AnswerOverstatedUnderstated	Answer	AnswerOverstatedUnderstated
Year 2	Answer	AnswerOverstatedUnderstated	Answer	AnswerOverstatedUnderstated