Regan Company Regan Company Reported Net Income of $95,000 for Year 1

Regan Company
Regan Company reported net income of $95,000 for Year 1. Early in Year 2, the company discovered that its Year1 ending inventory was overstated by $5,000.
-Refer to the information provided in the figure Regan Company.What would be the effects of the inventory errors for Year 1?

A) Assets and shareholders' equity will be overstated by $5,000 on the balance sheet; expenses and net income will be understated by $5,000 on the income statement.
B) Assets and shareholders' equity will be overstated by $5,000 on the balance sheet, and expenses will be overstated by $5,000 on the income statement; thus, net income will be understated by $5,000.
C) Assets and shareholders' equity will be understated by $5,000 on the balance sheet, and expenses will be overstated by $5,000 on the income statement; thus, net income will be understated by $5,000.
D) Assets and shareholders' equity will be overstated by $5,000 on the balance sheet, and expenses will be understated by $5,000 on the income statement; thus, net income will be overstated by $5,000.