Error Analysis The before-tax income for Fitzgerald Co. for 2010 was $101,000 and $77,400 for 2011. However, the accountant noted that the following errors had been made:
1. Sales for 2010 included amounts of $38,200 which had been received in cash during 2010, but for which the related products were delivered in 2011. Title did not pass to the purchaser until 2011.
2. The inventory on December 31, 2010, was understated by $8,640.
3. The bookkeeper in recording interest expense for both 2010 and 2011 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 $10,000 on January 1, 2010, to yield an effective interest rate of 7%. (Assume that the effective-interest method should be used.)
4. Ordinary repairs to equipment had been erroneously charged to the Equipment account during 2010 and 2011. Repairs in the amount of $8,000 in 2010 and $9,400 in 2011 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. Prepare a schedule showing the determination of corrected income before taxes for 2010 and 2011.