Merchandise of $65,000 was ordered on December 26, 2006, FOB destination, and was received on December 30, 2006. The invoice from the vendor was not received until January 7, 2007, and the related accounts payable journal entry was not recorded until January 7, 2007. However, since the merchandise was on hand at December 31, 2006, it was included in the physical inventory and properly assigned a cost. Assume that the accounts payable was recorded on January 7, 2007, as a debit to Merchandise Inventory and a credit to Accounts Payable for $65,000. Also, assume that the December 31, 2007, physical inventory is correct. Indicate the effects of the inventory misstatements on the financial statements for 2006 and 2007, using the following format for youranswers:

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Amount of Misstatement Overstatement (Understatement) 2006 2007 Balance sheet (December 31): Merchandise inventory Total assets Accounts payable Total liabilities Retained earnings Total stockholders' equity Income statement: Cost of merchandise sold Gross profit Net income