E9-6B (Lower-of-Cost-or-Market—Error Effect) Price Company uses the lower-of-cost-or-market method, on an individual-item basis, in pricing its inventory items.

E9-6B (Lower-of-Cost-or-Market—Error Effect) Price Company uses the lower-of-cost-or-market method, on an individual-item basis, in pricing its inventory items. The inventory at December 31, 2014, included product Z. Relevant per-unit data for product Z appear below.

Estimated selling price           $56

Cost                                         48

Replacement cost                   40

Estimated selling expense      18

Normal profit                             4

There were 5,000 units of product Z on hand at December 31, 2014. Product Z was incorrectly valued at $48 per unit for reporting purposes. All 5,000 units were sold in 2015.

Instructions

Compute the effect of this error on net income for 2014 and the effect on net income for 2015, and indicate the direction of the misstatement for each year.