Berkshire Inc. uses a periodic inventory system. At the end of 2020, it missed counting some inventory items, resulting in an inventory understatement by $620,000. Assume that Berkshire has a 25% income tax rate and that this was the only error it made. If undetected, what is the effect of this error on Berkshire's December 31, 2020 balance sheet? Assets understated by $465,000 and shareholders' equity understated by $465,000. Assets understated by $620,000 and shareholders' equity understated by $620,000. Assets understated by $620,000, liabilities understated by $155,000 and shareholders' equity understated by $465,000. None of these answer choices are correct.

Periodic inventory system is an inventory system under which all purchase and sale of inventories…

Answered: Berkshire Inc. uses a periodic…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Berkshire Inc. uses a periodic inventory system. At the end of 2020, it missed counting some inventory items, resulting in an inventory understatement by $620,000. Assume that Berkshire has a 25% income tax rate and that this was the only error it made.

If undetected, what is the effect of this error on Berkshire's December 31, 2020 balance sheet?

Assets understated by $465,000 and shareholders' equity understated by $465,000.
Assets understated by $620,000 and shareholders' equity understated by $620,000.
Assets understated by $620,000, liabilities understated by $155,000 and shareholders' equity understated by $465,000.
None of these answer choices are correct.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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