Inventory Errors Haywood Inc. reported the following information for Year 1: Beginning inventory $25,000 Ending inventory 42,000 Sales revenue 1,000,000 Cost of goods sold 620,000 A physical count of inventory at the end of the year showed that ending inventory was actually $65,000. Required: 1. What is the correct cost of goods sold and gross profit for Year 1? Cost of goods sold $ 607,000 X Gross profit $ 393,000 X 2. Assuming the error was not corrected, what is the effect on the balance sheet at December 31, Year 1? At December 31, Year 2? December 31, Year 1 Understated December 31, Year 2 Overstated X