Berkshire Inc

question 52

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.

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Definitions:

Selective Exposure

The tendency of individuals to preferentially seek out and pay attention to information that conforms to their pre-existing beliefs and values, while avoiding contradicting information.

Federal Trade Commission

An independent agency of the United States government, established to promote consumer protection and eliminate and prevent anticompetitive business practices.

Selective Retention

The process by which individuals remember information that is consistent with their beliefs and attitudes, while forgetting or ignoring contradictory information.

Point-Of-Purchase Displays

In-store advertising or marketing materials positioned at retail checkout areas or other point-of-sale locations to encourage impulse purchases or inform customers about products.