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:

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The error discovered is an understatement of ending inventory, which means cost of goods sold (COGS) was overstated by $25,000. As a result, when the error is corrected, COGS will decrease by $25,000 and net income will increase. The tax rate of 40% means that the increase in net income will be offset by a higher tax expense of $10,000 (40% of $25,000). Therefore, the net effect on net income will be an increase of $15,000 ($25,000 - $10,000).

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