Inventory Errors Assume that a company overstated its ending inventory by $5,000 at December 31, 20X1. Determine (1) whether the following financial statement items would be overstated or understated, and (2) the amount ofover-or under-statement, assuming 30% income tax rate. The ending inventory item is given to you as an example. 20X1 20X2 Income statement: Cost of goods sold Gross profit Pretax income Income tax expense Net income Inventory, ending Income tax payable Retained earnings, ending Balance sheet: Over $5,000 No effect