Answer; a. $ 2,000 understated
Explanation;
Inventory is usually self correcting so the overstatement in 2020 will not affect 2021. Only relevant effects will be the Depreciation in both years and inventory in 2021.
The Depreciation overstatement of $12,000 in 2020 had the effect of reducing Net income as it increased expenses so retained earnings will be understated.
In 2021, an understatement of Depreciation will overstate income as it understates expenses. The overstatement of Ending Inventory will lead to an understatement of Cost of Goods sold which will overstate Income as well.
2020 = $12,000 understatement
2021 = 6,000 + 4,000 = $10,000 overstatement
= 12,000 - 10,000
= $2,000 understatement