In the previous year, a firm failed to record premium amortization of $40,600 and $29,800, respectively, on its bonds payable and held to maturity bond investments. These errors affect both income before tax and taxable income. The firm's tax rate is 35%. As a result of this error, net income was:

	Understated by $33,580.
	Understated by $7,020.
	Overstated by $33,580.
	Overstated by $7,020.