Use the following information for questions 1 through 2

Friend Co. began operations on January 1, 2007. Financial statements for 2007 and 2008 contained the following errors:

	Dec. 31, 2007	Dec. 31, 2008
Ending inventory	$132,000 overstated	$156,000 understated
Depreciation expense	$84,000 overstated

In addition, on December 31, 2008 fully depreciated equipment was sold for $28,800, but the sale was not recorded until 2009. No corrections have been made for any of the errors. Ignore income tax considerations.

1. The total effect of the errors on Friend's 2008 net income is

overstated by $127,200

overstated by $184,800

understated by $316,800

understated by $259,200

2. The total effect of the errors on the balance of Friend's retained earnings at December 31, 2008 is understated by

$240,000

$268,800

$100,800

$184,800