For each of the following inventory errors occurring in 2018,determine the effect of the error on 2018's cost of goods sold, netincome, and retained earnings using understated (U), overstated(O), or no effect (NE). Assume that the error is not discovereduntil 2019 and that a periodic inventory system is used. Ignoreincome taxes.
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| | | Cost of | Net | Retained | | | Goods Sold | Income | Earnings | | 1. | Overstatement of ending inventory | | | | | 2. | Overstatement of purchases | | | | | 3. | Understatement of beginninginventory | | | | | 4. | Freight-in charges are understated | | | | | 5. | Understatement of ending inventory | | | | | 6. | Understatement of purchases | | | | | 7. | Overstatement of beginninginventory | | | | | 8. | Understatement of purchasesplus understatement of ending inventory by the same amount | | | |
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