Hi,

The way I deal with this question is -

In Year 1, the EI is understated by 18,000 so in year 2, the BI is understated by 18,000 and COGS is understated by 18,000 and NI is overstated by 18,000. Thus, to get to the right NI, we have to substract 18,000 from 260,000

In Year 2, the EI is overstated by 7,000. So COGS is understated by 7,000. And NI is overstated by 7,000. Thus, to get to the right NI, we have to substract 7,000 from 260,000

So the answer would be $260,000- $18,000- $7,000= $235,000

Hope this helps!