The Management of Dayton Ltd

Essay

The management of Dayton Ltd. erroneously understated its ending inventory during 2016 by $2,000. Using the information below and assuming there are no distributions of retained earnings: (1) present a brief analysis with the accurate numbers and the numbers in error and (2) explain whether retained earnings would be overstated, understated, or be indifferent to the error at the end of 2017.
2016 Sales: $60,000
2016 Purchases: $50,000
2016 Cost of Goods Sold (before effect of inventory error) $20,000
2017 Sales: $210,000
2017 Purchases: $60,000
2017 Cost of Goods Sold (based on error numbers): $68,000