The before-tax income for DogCat Inc. was $650,000 for 2014 and $521,800 for 2015. However, the accountant
Question:
The before-tax income for DogCat Inc. was $650,000 for 2014 and $521,800 for 2015. However, the accountant noted that the following errors had been made:
1. The bookkeeper in recording interest income for both years on an investment in 4% bonds with a par value of $100,000 made the following entry for each year.
Cash ........4,000
Interest Income...... 4,000
The bonds were purchased at a discount of $7,700 on January 1, 2014, to yield an effective interest rate of 5%. (Assume that the effective-yield method should be used.)
2. Sales for 2015 included amounts of $61,000 which were delivered in 2014 and paid for in 2015. Title passed to the purchaser upon delivery.
3. Interest of $82,500 related to the construction of a manufacturing facility had been erroneously charged to the expense during 2014 instead of being capitalized as part of the facility’s cost. The facility was completed and occupied on January 1, 2015. The company applies a rate of 5% to the balance in the building account at the end of the year in its determination of depreciation charges.
4. The inventory on December 31, 2014, was overstated by $16,800.
Instructions
Prepare a schedule showing the determination of corrected income before taxes for 2014 and 2015.
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...
Step by Step Answer:
Intermediate Accounting
ISBN: 978-1118147290
15th edition
Authors: Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield