Sandstone,Inc.,has consistently included some factory overhead as a current expense,rather than as a cost of producing goods.As a result,the beginning inventory for 2011 is understated by $40,000.If Sandstone voluntarily changes accounting methods effective January 1,2011,the adjustment to the inventory is a § 481 adjustment and $10,000 must be added to taxable income for each year 2011,2012,2013,and 2014.

Question

Quizplus · Accepted Answer

This is correct as a § 481 adjustment is required when a company voluntarily changes its accounting methods. In this case, to correct the understatement of beginning inventory for 2011, $10,000 must be added to taxable income for each year 2011-2014.