State the effects of inventory errors on cost of goods sold and net income for periods 1 and 2.The response should be overstated or understated.
Period 1 Ending Merchandise Inventory is understated 
Definitions:
Interdependence
The mutual reliance among businesses, individuals, industries, or economies, where the actions of one participant affect the outcomes of another.
Rivals
Competitors within the same industry or market that vie for the same customer base.
Herfindahl-Hirschman Index
A measure of market concentration to evaluate the potential for anticompetitive behavior or monopolies within an industry.
Competitive Market
A market structure characterized by a large number of buyers and sellers, free entry and exit, and a product that is homogeneous across sellers, leading to price determination by market forces.
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