Berkshire Inc. uses a periodic inventory system. At the end of 2017, it missed counting some inventory items, resulting in an inventory understatement by $600,000. Assume that Berkshire has a 30% income tax rate and that this was the only error it made.
- What is the effect of the error on Berkshire's 2018 income statement?
A) Net income is understated by $420,000.
B) Cost of goods sold is understated by $420,000.
C) There are no errors in the 2018 income statement.
D) None of these answer choices is correct.

Question

Quizplus · Accepted Answer

Cost of goods sold is understated by $600,000 because the beginning inventory is understated. Net income is overstated by $420,000.