A company's correct ending balance for the inventory account at the end of 2021 should be $5,000, but the company incorrectly stated it as $3,000. In 2022, the company correctly recorded its ending balance of the inventory account. Which one of the following is true?
A. Cost of goods sold is understated by $2,000 in 2021.
B. Gross profit is overstated by $2,000 in 2022.
C. Gross profit is overstated by $2,000 in 2021.
D. Retained earnings are understated by $2,000 in 2022.
Answer: B
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