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The before-tax income for Whispering Co. for 2020 was $98,000 and $80,800 for 2021. However, the accountant noted that the following errors had been made:
The before-tax income for Whispering Co. for 2020 was $98,000 and $80,800 for 2021. However, the accountant noted that the following errors had been made:
1. | Sales for 2020 included amounts of $40,700 which had been received in cash during 2020, but for which the related products were delivered in 2021. Title did not pass to the purchaser until 2021. | |
2. | The inventory on December 31, 2020, was understated by $8,100. | |
3. | The bookkeeper in recording interest expense for both 2020 and 2021 on bonds payable made the following entry on an annual basis. |
Interest Expense | 16,800 | |
Cash | 16,800 |
The bonds have a face value of $280,000 and pay a stated interest rate of 6%. They were issued at a discount of $16,000 on January 1, 2020, to yield an effective-interest rate of 7%. (Assume that the effective-yield method should be used.) |
4. | Ordinary repairs to equipment had been erroneously charged to the Equipment account during 2020 and 2021. Repairs in the amount of $8,900 in 2020 and $8,800 in 2021 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 2020 and 2021. (Enter negative amounts using either a negative sign preceding the number e.g. -15,000 or parentheses e.g. (15,000). Round answers to 0 decimal places, e.g. 125.)
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