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Problem 4 Fred Company made an error in counting and overstated its ending inventory by $5,000 for year 1. Circle the correct answer for each question. 1. What is the effect on cost of goods sold for year 1 ? a) Overstated b) Understated c) OK 2. What is the effect on gross profit for year 1 ? a) Overstated b) Understated c) OK 3. What is the effect on net income for year 1 ? a) Overstated b) Understated c) OK 4. What is the effect on beginning inventory for year 1 ? a) Overstated b) Understated c) OK 5. What is the effect on beginning inventory for year 2 ? a) Overstated b) Understated c) OK