Sandstone,Inc. ,has consistently included some factory overhead as a current expense,rather than as a cost of producing goods.As a result,the beginning inventory for 2016 is understated by $40,000.If Sandstone voluntarily changes accounting methods effective January 1,2016,the positive adjustment to the inventory is a § 481 adjustment and $10,000 must be added to taxable income for each year 2016,2017,2018,and 2019.

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The statement is true. A § 481 adjustment is required when there is a change in accounting method, and Sandstone's understatement of beginning inventory would require a positive adjustment. The adjustment would be spread over four years, resulting in an additional $10,000 of taxable income each year.