I am looking at Inventory Errors problem type 1 and I do not understand the formula. Can anyone help me understand how to solve this problem correctly?

= O MERCHANDISING AND INVENTORY Inventory errors: Problem type 1 You have been asked to audit the financial statements of Walker Company and report on your findings. After examining the beginning and ending inventory counts and calculations for the current year, you find the following: Beginning inventory is understated by $10,100. . Ending inventory is overstated by $2,000. Management of the company wants to know the effect that the errors will have on certain financial statement items. Required: Ignoring income taxes, determine the effect that the errors will have on the following: Is the item overstated What is the amount of or understated? error? Overstated Ending inventory Understated $1 O Overstated Gross Profit O Understated $0