Spencer Company's December 31, 2010, ending inventory was overstated by $50,000 due to including inventory in transit that belonged to Brown Company. The effect of this error on the financial statements prepared as of and for the year ended December 31, 2010 (Year 1), would be Multiple Choice Cost of good sold is overstated Retained earnings in year 1 is understated Net Income is understated Cost of good sold is understated