Problem $1$

For each of the following inventory errors occurring during $2018,$ determine the effect of the error on $2018$s cost of goods sold, net income, and retained earnings. Assume that the error is not discovered until $2019$ and that a periodic inventory system is used. Ignore income taxes. Use U $($understated$),$ O $($overstated$),$ or NE $($no effect$).$

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$$

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COGS

Net Income

Retained Earnings

Overstatement of ending inventory

$$

$$

$$

Overstatement of purchases

$$

$$

$$

Understatement of beginning inventory

$$

$$

$$

Freight$-$in charges are overstated

$$

$$

$$

Understatement of ending inventory

$$

$$

$$

Understatement of purchases

$$

$$

$$

Overstatement of beginning inventory

$$

$$

$$

Understatement of purchases plus understatement of ending inventory by the same amount

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