On December 31, Year 1, Owings Corporation overstates the ending inventory by $5,000. How will this affect the amount of retained earnings shown on the balance sheet at December 31, Year 2?
A. Retained Earnings will be overstated by $5,000.
B. Retained Earnings will be understated by $5,000.
C. Retained Earnings will be correctly stated.
D. Cannot be determined with the above information.
Answer: C
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