Question
Berkshire Inc. uses a periodic inventory system. At the end of 2017, it missed counting some inventory items, resulting in an inventory understatement by $660,000.
Berkshire Inc. uses a periodic inventory system. At the end of 2017, it missed counting some inventory items, resulting in an inventory understatement by $660,000. Assume that Berkshire has a 35% income tax rate and that this was the only error it made. If undetected, what is the effect of this error on Berkshire's December 31,2017 balance sheet?
Multiple Choice
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Assets understated by $660,000 and shareholders' equity understated by $660,000.
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Assets understated by $429,000 and shareholders' equity understated by $429,000.
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Assets understated by $660,000, liabilities understated by $231,000 and shareholders' equity understated by $429,000.
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None of these answer choices are correct.
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