A company uses the periodic inventory method. Beginning inventory is understated by $10,000 because the prior’s year’s ending inventory was understated by $10,000. The company’s ending inventory for this period is correct. The current period’s gross profit is _ and this year’s ending retained earnings is ___. Group of answer choices
a. (i) understated and (ii) understated.
b. (i) overstated and (ii) understated.
c. (i) overstated and (ii) overstated.
d. (i) overstated; (ii) neither overstated nor understated.
e. (i) understated and (ii) neither overstated nor understated.

As in the current year the opening inventory is understated which means the cost of goods sold is understated the profit for current period will be overstated as this is because, cost of goods sold is less than actual cost of goods sold.

Also as in the previous year the closing stock was understated the cost of goods sold is overstated accordingly profit was low by $10,000 in previous year than actual, and that the current year profit is overstated by $10,000

Therefore net impact - $10,000 + $10,000 is NIL and the closing balance of retained earnings is correct.