Logan Manufacturing has been challenged by increasing costs and pressures from competitors. Pretax income was $100,000 and $60,000 in 2015 and 2016, respectively. In 2017, the company reported first-quarter pretax income of $40,000 and forecasted pretax losses for the balance of the year of $210,000. The company reported pretax losses of $30,000 during the second quarter of 2017 and forecasted pretax losses of $150,000 for the balance of the year. During the third quarter of 2017, the company changed accounting principles with respect to inventory accounting. The result of retrospective application on pretax amounts was as follows:
• Increase 2015 and 2016 pretax income by $20,000 and 25,000, respectively.
• Increase first-quarter 2017 pretax income by $30,000 and decrease the forecasted pretax losses for the balance of the year (quarters 2, 3 and 4) by $55,000.
• Decrease second-quarter 2017 pretax loss by $20,000 and decrease the forecasted pretax losses for the balance of the year (quarters 3 and 4) by $20,000.
Statutory tax rates for years 2015 through 2017 are as follows: 15% on the first $50,000, 25% on the next $25,000, 34% on the next $25,000, and 39% on remaining income up to $335,000.
Calculate the pretax income (loss) and related tax expense (benefit) for the first and second quarters of 2017 as reported before and after the change in accounting principle.