LaGreca Company uses the LCNRV method, on an individual-item basis, in pricing its inventory items. The inventory at December 31, 2020, included product X. Relevant per-unit data for product X are as follows.

Estimated selling price......................................$50
Cost........................................................................40
Estimated selling costs........................................14
Normal profit..........................................................9

There were 1,000 units of product X on hand at December 31, 2020. Product X was incorrectly valued at $38 per unit for reporting purposes. All 1,000 units were sold in 2021.

Instructions

Compute the effect of this error on net income for 2020 and the effect on net income for 2021, and indicate the direction of the misstatement for each year.