M7-9 (Static) Determining the Financial Statement Effects of Inventory Errors L07-7 Assume the prior year ending inventory was understated by $50,000. How would this error affect the prior year and current year pretax income amounts. What would be the effects if the prior year ending inventory were overstated by $50,000 instead of understated? Also, indicate the effect of these errors on total pretax income for the two years. Effect Prior Year Pretax Income Current Year Pretax Income Prior Year Ending Inventory Understated $50,000 Overstated $50,000 Total Pretax income for the Two years Overstated $50,000 Understated $50,000 Overstated $50,000 Overstated $50,000 Understated $50,000 Overstated $50,000 Understated $50,000 Overstated $50,000 No effect