I think it is based on the COGS formula,

that, at year end, you make a physcial count and calculate COGS

as follows: Beg+purchases-Ending = COGS

when inventory ending balance did not include an amount, that overstated COGS, which in turn understate income. by 40,000 which is 28,000 net of tax.

When you make adjustments, you have to take the tax into consideration, tax affects net income, the prior year net income was calculated after tax before it is included in R/E.

For me I prefer a shortcut, what I know from studying FIFO and LIFO that,

Inventory and Net income are directly proportional, increase and decrease together.

So, If inventory was understated, that makes N.I understated, but N.I will be net of tax when they mention the tax rate.

I hope this helps.