Plastics Ltd. (PL) had been a public company for the past 15 years. However this year, 20X6, PL’s senior management acquired 90% of the shares outstanding in public hands and, as permitted by securities legislation, forced the redemption of the remaining minority shares and took the company private. Management then sought to simplify some of PL’s accounting policies for the benefit of its bankers and creditors, with greater transparency regarding cash flows. One of the changes management wished to make was to report product development expense on the basis of costs incurred rather than by capitalizing and amortizing those costs. The company’s records contain the following information regarding the deferred development cost account:

Required:
Determine the restatements that PL will need to make to net earnings for each year, 20X1 through 20X5, as well as the necessary 20X6 adjusting entry. PL’s income tax rate is 30%.

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Year 20X5 20X4 20X3 20X2 20X1 Beginning Balance $35,584 28,480 25,600 12,000 0 Costs Incurred $ 6,000 16,000 10,000 20,000 15,000 Amortization $8,317 8,896 7,120 6,400 3,000 Ending Balance $33,267 35,584 28,480 25,600 12,000