What are the effects of understating the prior year ending inventory by $50,000 on pretax income for both the prior year and the current year?

Understating the prior year ending inventory by $50,000 would result in an overstatement of pretax income by $50,000 for the prior year and an understatement of pretax income by $50,000 for the current year. This is because the ending inventory of one year becomes the beginning inventory of the next year, affecting the cost of goods sold in both periods.

When the prior year's ending inventory is understated, the cost of goods sold for that year is overstated, leading to an inflated pretax income. Conversely, in the current year, the understated ending inventory from the prior year becomes the beginning inventory, which results in a lower cost of goods sold and thus an inflated pretax income for the current year. Therefore, the effects of the inventory error are mirrored across the two years, with one year showing an overstatement and the next year showing an understatement of pretax income.