4.On December 31, Year 1, Johnson Corporation sold on account and shipped merchandise with a list price of $75,000 to Gibsen Company. The terms of the sale were n/30, FOB shipping point. The merchandise arrived at Gibsen on January 5, Year 2. Because of confusion about the shipping terms, the sale was not recorded until January of Year 2 and the merchandise, sold at a markup of 25% of cost, was included in Johnson's inventory on December 31, Year 1. Johnson uses a periodic inventory system. As a result of the above, Johnson's income before income taxes for the year ended December 31, Year 1 was

A.Understated by $18,750.

B.Correctly stated.

C.Understated by $75,000.

D.Understated by $15,000.