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 2018 is understated by $10,000. If Sandstone voluntarily changes accounting methods effective January 1, 2018, the positive adjustment to the inventory is a § 481 adjustment and $2,500 must be added to taxable income for each year 2018, 2019, 2020, and 2021.

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This is the correct treatment for a § 481 adjustment due to a change in accounting method. Sandstone will have to add $2,500 to taxable income for each of the four years mentioned.