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# Inventory Errors: Inventory Under Year 1, Over Year 2

FINACT-EAIZ7P

At the end of 2018 Blue Sky Company discovered that it had understated its Inventory by \$52,000 at the end of 2016 and overstated inventory by \$38,000 at the end of 2017. Blue Sky uses the Periodic Inventory System.

Ignoring income taxes, by how much is Blue Sky’s Retained Earnings incorrectly reported on the December 31, 2017 Balance Sheet?

A

\$38,000 overstated B \$38,000 understated

C

\$52,000 understated D \$14,000 understated