Travis Inc. has just completed its financial statements for the reporting year ended December $31$ of Year $5.$ Pretax

income is $$160,000.$ The accounts have not been closed for December $31$ of Year $5.$ Further consideration and

review of the records revealed the following items related to the Year $5$ statements.

On January $1$ of Year $1,$ a machine was acquired that cost $$10,000.$ The estimated useful life was $10$ years,

and the residual value was $$2,000.$ At the time of acquisition, the full cost of the machine was incorrectly

debited to the land account. The company uses straight$-$line depreciation.

On January $1$ of Year $3,$ a long$-$term investment of $$18,000$ was made by purchasing a $$20,000,8\%$ bond of

FDC Corporation. The investment account was debited for $$18,000.$ Each year, starting on December $31$ of

Year $3,$ the company has recognized and reported investment revenue on these bonds of $$1,600.$ The bonds

mature in $10$ years from the date of purchase. Assume that any amortization would follow the straight$-$line

method and that Travis intends to hold the bonds to maturity.

The Year $4$ ending inventory was overstated by $$7,000($periodic inventory system$).$

An $$11,000$ credit purchase of merchandise occurred on December $18$ of Year $4.$ Because the merchandise

was held on December $31$ of Year $4,$ it was included in the Year $4$ ending inventory. The purchase was re$-$

corded on January $18$ of Year $5,$ when the invoice was paid $($periodic inventory system$).$

Required

a$.$ Prepare correcting entries that should be made on December $31$ of Year $5$ for each of the four errors identi$-$

fied. Ignore income tax effects.

b$.$ Compute the correct pretax income for Year $5.$