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 Gross profit 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 December 31, Year 2 Overstated Understated No effect