You have been asked to audit thefinancial statementsof Young Company for two consecutive years. After examining the accounting records, you determine the following:Ending inventoryin Year 1 is overstated by $7,000

• Ending inventory in Year 2 is overstated by $4,300

Required:

Ignoring income taxes, what effect will the errors have onnet incomefor each of Year 1 and Year 2?

Net Income - Year 1: Is the item overstated or understated?

What is the amount of error?

Net Income -Year 2: Is the item overstated or understated? What is the amount of error?