The before-tax income for Pronghorn Co. for 2017 was $98,000 and $83,700 for 201

Question

The before-tax income for Pronghorn Co. for 2017 was $98,000 and $83,700 for 2018. However, the accountant noted that the following errors had been made:

Interest Expense

16,800

     Cash

16,800

Prepare a schedule showing the determination of corrected income before taxes for 2017 and 2018. (Enter negative amounts using either a negative sign preceding the number e.g. -15,000 or parentheses e.g. (15,000). Round answers to 0 decimal places, e.g. 125.)

2017

2018

Income Before Tax

Corrections:

Corrected Income Before Tax

1. Sales for 2017 included amounts of $41,800 which had been received in cash during 2017, but for which the related products were delivered in 2018. Title did not pass to the purchaser until 2018. 2. The inventory on December 31, 2017, was understated by $8,000. 3. The bookkeeper in recording interest expense for both 2017 and 2018 on bonds payable made the following entry on an annual basis.

Explanation / Answer

SOLUTION

*Adjustment to Bond Interest Expense

2017- $280,000*6% = $16,800

($280,000 - $16,000)*7% = $18,480

Adjustment amount = $18,480 - $16,800 = $1,680

2018- ($280,000 - $16,000 + $1,680)*7% = $18,598

Adjustment amount = $18,598 - $16,800 = $1,798

**Depreciation Recorded on Improperly Capitalized Repairs-

2017- 7,700 * 10% = $770

2018- ($7,700 + $9,500 - $770) * 10% = 1,643

2017 ($) 2018 ($) Income Before Tax 98,000 83,700 Corrections: Sales Erroneously Included in 2017 Income (41,800) 41,800 Understatement of 2017 Ending Inventory 8,000 (8,000) Adjustment to Bond Interest Expense* 1,680 (1,798) Repairs Erroneously Charged to the Equipment Account (7,700) (9,500) Depreciation Recorded on Improperly Capitalized Repairs ** 770 1,643 Corrected Income Before Tax 58,950 107,845

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