Portland Supplies Co. mistakenly excluded $3,000 of goods from its December 31, 2016 physical inventory count. Its December 31, 2017 inventory amount was correct. As a result of this error,

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DExcluding $3,000 of goods from the 2016 inventory count means that the 2016 ending inventory is understated, which leads to an overstatement of the 2016 cost of goods sold. This error causes the 2016 income to be understated, not overstated. Since the 2017 inventory amount is correct, the error corrects itself in 2017. However, the understatement of the 2016 ending inventory becomes an understatement of the 2017 beginning inventory, which causes the 2017 cost of goods sold to be overstated. This, in turn, leads to the 2017 income being understated, not overstated. Therefore, the correct statements are that the 2017 income is understated (opposite of choice C) and the 2017 cost of goods sold is overstated (choice D).