• You have been asked to audit thefinancial statementsof Lee Company and report on your findings. After examining the beginning and endinginventorycounts and calculations for the current year, you find the following:Beginning inventory is understated by $3,400.
• Ending inventory is understated by $8,200.

Management of the company wants to know the effect that the errors will have on certain financial statement items.

Required:

Ignoring income taxes, determine the effect that the errors will have on the following:

Cost of goods sold: Is it over or understated? What is the amount of error?

Gross profit: Is it over or understated? What is the amount of error?