Question

After issuing its financial statements, a company discovered that its beginning inventory was overstated by $150,000. Its tax rate is 25%. As a result of this error, net income was:

Answer 1

Understated by $112,500

Step-by-step explanation:

Calculation to determine the Net income

Using this formula

Net income=Overstated beginning inventory×(1-Tax rate)

Let plug in the formula

Net income=$150,000 x (1-25%)

Net income=$150,000×.75

Net income= $112,500 Understated

Therefore As a result of this error, net income was:Understated by $112,500