The following income statement was prepared for Rice Company for Year 1:

During the year-end audit, the following errors were discovered:
1. An $1,800 payment for repairs was erroneously charged to the Cost of Goods Sold account. (Assume that the perpetual inventory system is used.)
2. Sales to customers for $3,400 at December 31, Year 1, were not recorded in the books for Year 1. Also, the $1,870 cost of goods sold was not recorded
3. A mathematical error was made in determining ending inventory. Ending inventory was understated by $1,700. (The Inventory account was written down in error to the Cost of Goods Sold account.)

Required
Determine the effect, if any, of each of the errors on the following items. Give the dollar amount of the effect and whether it would overstate (O), understate (U), or not affect (NA) the account. The effect on sales is recorded as an example.

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RICE COMPANY Income Statement For the Year Ended December 31, Year 1 $ 75,000 (41,250) Sales Cost of goods sold Gross margin Operating expenses 33,750 (10,120) $ 23,630 Net income Error No. 1 Amount of Error Effect Sales, Year 1 NA NA Ending inventory, December 31, Year 1 Gross margin, Year 1 Beginning inventory, January 1, Year 2 Cost of goods sold, Year 1 Net income, Year 1 Retained earnings, December 31, Year 1 Total assets, December 31, Year 1 Error No. 2 Amount of Error Effect Sales, Year 1 $3,400 Ending inventory, December 31, Year 1 Gross margin, Year 1 Beginning inventory, January 1, Year 2 Cost of goods sold, Year 1 Net income, Year 1 Retained earnings, December 31, Year 1 Total assets, December 31, Year 1 Error No. 3 Amount of Error Effect Sales, Year 1 NA NA Ending inventory, December 31, Year 1 Gross margin, Year 1 Beginning inventory, January 1, Year 2 Cost of goods sold, Year 1 Net income, Year 1 Retained earnings, December 31, Year 1 Total assets, December 31, Year 1