The before-tax income for Lonnie Holdiman Co. for 2020 was $101,000 and $77,400 for 2021. However, the

Question:

The before-tax income for Lonnie Holdiman Co. for 2020 was $101,000 and $77,400 for 2021. However, the accountant noted that the following errors had been made:

1. Sales for 2020 included amounts of $38,200 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 $8,640.

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........................................15,000
Cash..........................................................................................15,000

The bonds have a face value of $250,000 and pay a stated interest rate of 6%. They were issued at a discount of $15,000 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 $8,500 in 2020 and $9,400 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.


Instructions

Prepare a schedule showing the determination of corrected income before taxes for 2020 and 2021.

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...
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Related Book For  book-img-for-question

Intermediate Accounting

ISBN: 978-1119503668

17th edition

Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfiel

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