On October 1, Year 3, Eure Retailers signed a 4-month, 16% note payable to finance the purchase of holiday merchandise. At that date, there was no direct method of pricing the merchandise, and the...

On October 1, Year 3, Eure Retailers signed a 4-month, 16% note payable to finance the purchase of holiday merchandise. At that date, there was no direct method of pricing the merchandise, and the note's market rate of interest was 11%. Eure recorded the purchase at the note's face amount. All of the merchandise was sold by December 1, Year 3. Eure's Year 3 financial statements reported interest payable and interest expense on the note for 3 months at 16%. All amounts due on the note were paid February 1, Year 4. As a result of Eure's accounting treatment of the note, interest, and merchandise, are Eure's Year 3 year-end Retained Earnings and Interest Payable correct? If not, are they overstated, or understated, by how much?