Following are descriptions of two independent situations that involve inventory misstatements. 1. Ending merchandise inventory is overstated by $7,500 on December 31, 2006. Ending merchandise...

Following are descriptions of two independent situations that involve inventory misstatements. 1. Ending merchandise inventory is overstated by $7,500 on December 31, 2006. Ending merchandise inventory is overstated by $10,000 on December 31, 2007. 2. Ending merchandise inventory is understated by $11,000 on December 31, 2006. Ending merchandise inventory is understated by $9,000 on December 31, 2007. For each situation, indicate the effects of the misstatements on the financial statements for 2006 and 2007. Use the following format for your answers: Amount of Misstatement Overstatement (Understatement) 2006 2007 Balance sheet (December 31): Merchandise inventory _____ _____ Current assets _____ _____ Total assets _____ _____ Retained earnings _____ _____ Total stockholders’ equity _____ _____ Income statement: Cost of merchandise sold _____ _____ Gross profit _____ _____ Net income _____ _____