The example is same as that in Q$6.$

At the end of $2023,$ the company made an inventory error that it missed counting some inventory items, resulting in an ending inventory understatement by $$700,000.$ Assume a $25\%$ income tax rate.

$1\mathrm{.}56$

points

What is the effect of this error on $2024$ balance sheet?

$00$:$57$:$17$

Multiple Choice

There are no errors in the December $31,2024$ balance sheet.

Assets understated by $$700,000$ and shareholders' equity understated by $$700,000.$

Assets understated by $$525,000$ and shareholders' equity understated by $$525,000.$

Liabilities understated by $$175,000$ and shareholders' equity overstated by $$525,000.$

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