The before-tax income for Lonnie Holdiman Co. for 2020 was $101,000 and $77,400 for 2021. However, the accountant noted that the following errors had been made: 1. Sales for 2020 included amounts of $38,200 which had been received in cash during 2020, but for which the related products were delivered in 2021. Title did not pass to the purchaser until 2021. 2. The inventory on December 31, 2020, was understated by $8,640. 3. The bookkeeper in recording interest expense for both 2020 and 2021 on bonds payable made the following entry on an annual basis. Interest Expense 15,000 Cash 15,000 The bonds have a face value of $250,000 and pay a stated interest rate of 6%. They were issued at a discount of $15,000 on January 1, 2020, to yield an effective-interest rate of 7%. (Assume that the effective-yield method should be used.) 4. Ordinary repairs to equipment had been erroneously charged to the Equipment account during 2020 and 2021. Repairs in the amount of $8,500 in 2020 and $9,400 in 2021 were so charged. The company applies a rate of 10% to the balance in the Equipment account at the end of the year in its determination of depreciation charges. Instructions Prepare a schedule showing the determination of corrected income before taxes for 2020 and 2021.
The before-tax income for Lonnie Holdiman Co. for 2020 was $101,000 and $77,400 for 2021. However, the accountant noted that the following errors had been made: 1. Sales for 2020 included amounts of $38,200 which had been received in cash during 2020, but for which the related products were delivered in 2021. Title did not pass to the purchaser until 2021. 2. The inventory on December 31, 2020, was understated by $8,640. 3. The bookkeeper in recording interest expense for both 2020 and 2021 on bonds payable made the following entry on an annual basis. Interest Expense 15,000 Cash 15,000 The bonds have a face value of $250,000 and pay a stated interest rate of 6%. They were issued at a discount of $15,000 on January 1, 2020, to yield an effective-interest rate of 7%. (Assume that the effective-yield method should be used.) 4. Ordinary repairs to equipment had been erroneously charged to the Equipment account during 2020 and 2021. Repairs in the amount of $8,500 in 2020 and $9,400 in 2021 were so charged. The company applies a rate of 10% to the balance in the Equipment account at the end of the year in its determination of depreciation charges. Instructions Prepare a schedule showing the determination of corrected income before taxes for 2020 and 2021.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter22: Accounting For Changes And Errors.
Section: Chapter Questions
Problem 5E: Fava Company began operations in 2018 and used the LIFO inventory method for both financial...
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The before-tax income for Lonnie Holdiman Co. for 2020 was $101,000 and $77,400 for 2021. However, the accountant noted that the following errors had been made:
- 1. Sales for 2020 included amounts of $38,200 which had been received in cash during 2020, but for which the related products were delivered in 2021. Title did not pass to the purchaser until 2021.
- 2. The inventory on December 31, 2020, was understated by $8,640.
- 3. The bookkeeper in recording interest expense for both 2020 and 2021 on bonds payable made the following entry on an annual basis.
Interest Expense15,000Cash15,000
The bonds have a face value of $250,000 and pay a stated interest rate of 6%. They were issued at a discount of $15,000 on January 1, 2020, to yield an effective-interest rate of 7%. (Assume that the effective-yield method should be used.)
- 4. Ordinary repairs to equipment had been erroneously charged to the Equipment account during 2020 and 2021. Repairs in the amount of $8,500 in 2020 and $9,400 in 2021 were so charged. The company applies a rate of 10% to the balance in the Equipment account at the end of the year in its determination of
depreciation charges.
Instructions
Prepare a schedule showing the determination of corrected income before taxes for 2020 and 2021.
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