Martin Marty, Inc., is a calendar-year corporation. Its financial statements for the years ended 12/31/20 and 12/31/21 contained the following errors: 2020 2021 Ending inventory $5,000 overstatement $8,000 understatement Depreciation expense $2,000 understatement $4,000 overstatement Assume that no correcting entries were made at 12/31/20 or 12/31/21 and that no additional errors occurred in 2022. By how much will 2022 income before income taxes be overstated or understated?

Answers:

a. $10,000 understatement

b.$3,000 understatement

c. $8,000 overstatement

d. $7,000 overstatement