Palaylar PART D-COMMUNICATION - 10 MARKS Overstatement of Ending Inventory Olivia's Outdoor Appliance Company is an Industrial BBQ equipment wholesaler. Olivia's 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 April 30, 2020, ending inventory was originally determined to be $3,265,000. However, on April 17, 2020, lona Carr, the company's controller, discovered an error in the ending inventory count. She determined that the correct ending inventory amount should be $2,600,000. Olivia's is a privately-owned corporation with significant financing provided by a local bank. The bank requires annual audited financial statements as a condition of the loan. By April 17, the auditors had completed their review of the financial statements which are scheduled to be issued on April 25. They did not discover the inventory error. Car's first reaction was to communicate her finding to the auditors and to revise the financial statements before they are issued. However, she knows that her and his fellow workers' profit- sharing plans are based on annual pre-tax earnings and that if she revises the statements, everyone's profit-sharing bonus will be significantly reduced. Questions 1. Why will bonuses be negatively affected? What is the effect on pre-tax earnings? (3 marks) 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 marks) 3. Discuss the ethical dilemma lona Carr faces. (4 marks)