Botticelli Inc was organized in late 2012 to manufacture and sell hosiery At the end of its fourth year of operation, the company has been fairly successful, as indicated by the following reported net incomes 2012 $146,200 a 2014 $217,400 2013 160,100 b 2015 278,700 a Includes a $10,400 increase because of change in bad debt experience rate b Includes extraordinary gain of $25,600 The company has decided to expand operations and has applied for a sizable bank loan The bank officer has indicated that the records should be audited and presented in comparative statements to facilitate analysis by the bank Botticelli Inc therefore hired the auditing firm of Check Doublecheck Co and has provided the following additional information 1 In early 2013, Botticelli Inc changed its estimate from 2 to 1 on the amount of bad debt expense to be charged to operations Bad debt expense for 2012, if a 1 rate had been used, would have been $10,400 The company therefore restated its net income for 2012 2 In 2015, the auditor discovered that the company had changed its method of inventory pricing from LIFO to FIFO The effect on the income statements for the previous years is as follows 2012 2013 2014 2015 Net income unadjustedLIFO basis $146,200 $160,100 $217,400 $278,700 Net income unadjustedFIFO basis 163,800 165,500 233,100 265,700 $17,600 $5,400 $15,700 $(13,000) 3 In 2015, the auditor discovered that (a) The company incorrectly overstated the ending inventory (under both LIFO and FIFO) by $11,300 in 2014 (b) A dispute developed in 2013 with the Internal Revenue Service over the deductibility of entertainment expenses In 2012, the company was not permitted these deductions, but a tax settlement was reached in 2015 that allowed these expenses As a result of the courts finding, tax expenses in 2015 were reduced by $62,600 (b) Present comparative income statements for the years 2012 to 2015, starting with income before extraordinary items (Ignore income tax considerations )

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Botticelli Inc. was organized in late 2012 to manufacture and sell hosiery. At the end of its fourth year of operation, the company has been

Botticelli Inc. was organized in late 2012 to manufacture and sell hosiery. At the end of its fourth year of operation, the company has been fairly successful, as indicated by the following reported net incomes.

2012		$146,200^a		2014		$217,400
2013		160,100^b		2015		278,700

^aIncludes a $10,400 increase because of change in bad debt experience rate. ^bIncludes extraordinary gain of $25,600. The company has decided to expand operations and has applied for a sizable bank loan. The bank officer has indicated that the records should be audited and presented in comparative statements to facilitate analysis by the bank. Botticelli Inc. therefore hired the auditing firm of Check & Doublecheck Co. and has provided the following additional information.

1.		In early 2013, Botticelli Inc. changed its estimate from 2% to 1% on the amount of bad debt expense to be charged to operations. Bad debt expense for 2012, if a 1% rate had been used, would have been $10,400. The company therefore restated its net income for 2012.
2.		In 2015, the auditor discovered that the company had changed its method of inventory pricing from LIFO to FIFO. The effect on the income statements for the previous years is as follows.

	2012	2013	2014	2015
Net income unadjustedLIFO basis	$146,200	$160,100	$217,400	$278,700
Net income unadjustedFIFO basis	163,800	165,500	233,100	265,700
	$17,600	$5,400	$15,700	$(13,000)

3. In 2015, the auditor discovered that:

(a)		The company incorrectly overstated the ending inventory (under both LIFO and FIFO) by $11,300 in 2014.
(b)		A dispute developed in 2013 with the Internal Revenue Service over the deductibility of entertainment expenses. In 2012, the company was not permitted these deductions, but a tax settlement was reached in 2015 that allowed these expenses. As a result of the courts finding, tax expenses in 2015 were reduced by $62,600.

(b) Present comparative income statements for the years 2012 to 2015, starting with income before extraordinary items. (Ignore income tax considerations.)