• You have been asked to audit thefinancial statementsof Howard Company and report on your findings.
• After examining the beginning and endinginventorycounts and calculations for the current year, you find the following:
• Beginning inventory is understated by $1,200.
• Ending inventory is understated by $1,300.

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:

Cost of goods: Over or understated and amount of the error?

Gross profit: over or understated and amount of the error?