Happy House Corporation reported net sales of $425,000 for the current year. After the financial statements had been prepared, it was discovered that ending inventory had been understated by $25,000. If the tax rate is 40%, after the error has been corrected, net income will:

Question

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Understating ending inventory causes cost of goods sold to be overstated, which reduces net income. Correcting this error decreases cost of goods sold by $25,000, increasing pre-tax income by $25,000. After accounting for a 40% tax rate, net income increases by $15,000 ($25,000 * (1 - 0.40)).

Happy House Corporation Reported Net Sales of $425,000 for the Current