Berkshire Inc

Multiple Choice

Berkshire Inc. uses a periodic inventory system. At the end of 2017, it missed counting some inventory items, resulting in an inventory understatement by $600,000. Assume that Berkshire has a 30% income tax rate and that this was the only error it made. v
-If undetected, what is the effect of this error on Berkshire's December 31,2017 balance sheet?

A) Assets understated by $600,000 and shareholders' equity understated by $600,000.
B) Assets understated by $420,000 and shareholders' equity understated by $420,000.
C) Assets understated by $600,000, liabilities understated by $180,000, and shareholders' equity understated by $420,000.
D) None of these answer choices are correct.