Error Analysis:
The before-tax income for Lonnie Holdiman Co. for 2007 was $101,000 and $77,400 for 2008. However, the accountant noted that the following errors had been made:
1 Sales for 2007 included amounts of $38,200 which had been received in cash during 2007, but for which the related products were delivered in 2008. Title did not pass to the purchaser until 2008.
2 The inventory on December 31, 2007 was understatted by $8,640.
3 The bookkeeper in recording interest expense for both 2007 and 2008 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, 2007, to yield an effective interest
4 Ordinary repairs to equipment had been erroneously charged to the Equipment account during 2007 and 2008. Repairs in the amount of $8,500 in 2007 and $9,4000 in 2008 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 2007 and 2008.