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 2017 is understated by $40,000. If Sandstone voluntarily changes accounting methods effective January 1, 2017, the positive adjustment to the inventory is a § 481 adjustment and $10,000 must be added to taxable income for each year 2017, 2018, 2019, and 2020.

Question

Quizplus · Accepted Answer

If Sandstone voluntarily changes its accounting methods, the positive adjustment to inventory is considered a § 481 adjustment. This means that Sandstone would need to add $10,000 to its taxable income for each year from 2017 to 2020, which totals $40,000. Therefore, the correct answer is A.