MC Qu. 65 LO 20-06 Berkshire Inc. uses a periodic inventory system. At the end of...

Berkshire Inc. uses a periodic inventory system. At the end of 2012, it missed counting some inventory items, resulting in an inventory understatement by $580,000. Assume that Berkshire has a 30% income tax rate and that this was the only error it made.

If undetected, what is the effect of this error on Berkshire's 12/31/2012 balance sheet?

Assets understated by $580,000, liabilities understated by $174,000 and shareholders' equity understated by $406,000.

None of these is correct.

Assets understated by $406,000 and shareholders' equity understated by $406,000.

Assets understated by $580,000 and shareholders' equity understated by $580,000.