The before-tax income for Fitzgerald Co. for 2021 was $101,000, and for 2022 was $77,400. However, the accountant noted that the following errors had been made.

1. Sales and revenue for 2021 included $38,200 which had been received in cash during 2021, but for which the related products were delivered in 2022. Title did not pass to the purchaser until 2022.

2. The inventory on December 31, 2021, was understated by $8,640.

3. In recording interest expense for both 2021 and 2022 on bonds payable, the bookkeeper made the following entry on an annual basis.

The bonds have a face value of $250,000 and pay a stated interest rate of 6%. They were issued at a discount of $10,000 on January 1, 2021 to yield an effective-interest rate of 7%. Assume that the effective-interest method should be used.

4. Ordinary repairs to equipment were erroneously charged to the Equipment account during 2021 and 2022. Repairs in the amount of $8,000 in 2021 and $9,400 in 2022 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 2021 and 2022.

Transcribed Image Text:

Interest Expense 15,000 Cash 15,000