Hops Inc. is a wholesale beverage company. Hops uses the FIFO inventory method to determine the cost of its ending inventory. Ending inventory quantities are determined by a physical count. For the fiscal year-end September 30, 2019, ending inventory was originally determined to be $3,355,000. However, on October 15, 2019, Sue Miller, the company's controller, discovered an error in the ending inventory count. She determined that the correct ending inventory amount should be $2,500,000.

Hops is a privately owned corporation with substantial financing provided by a local bank, and a condition of the loan requires annual audited financial statements. By October 15, the auditors had completed their review of the financial statements which are scheduled to be issued on October 26. The auditors did not discover the inventory error.

Sue's first reaction was to communicate her findings to the auditors and to revise the financial statements before they were issued, however, she knows that all Hops employees' profit-sharing plans are based on annual pretax earnings and that if she revises the statements, everyone's profit-sharing bonus will be significantly lower.

Your assignment:

Discuss the following in your initial post:

1. Why will bonuses be negatively affected? What is the effect on pretax earnings?

2. If the error is not corrected in the current year and is discovered by the auditors during the following year's audit, how will it be reported in the company's financial statements?

3. Discuss the ethical dilemma Sue Miller faces.