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) Gross profit is overstated by $2,000 in 2021.

B) Retained earnings are understated by $2,000 in 2022.

C) Gross profit is overstated by $2,000 in 2022.

D) Cost of goods sold is understated by $2,000 in 2021.

Answer: C