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. What is the effect of the error on Berkshire's 2018 income statement?

The computation of the effect of the given error is shown below:

Since the inventory is understated by $600,000

Plus, the income tax rate is also given i. e 30%

So the assets should be understated by $600,000

The liabilities would also be understated by

= $600,000 * 30%

= $180,000

And, the stockholder equity is also understated by

= $600,000 - $180,000

= $420,000

Since the tax rate is also understated which decrease the liabilities and the equity as well