E$9\mathrm{.}6($LO $1)($LCNRV$$Error Effect$)$ 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.