Question

The before-tax income for Indigo Co. for 2017 was $90,000 and $73,100 for 2018. However, the accountant noted that the following errors had been made:

1.		Sales for 2017 included amounts of $41,300 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 $7,900.
3.		The bookkeeper in recording interest expense for both 2017 and 2018 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 $14,000 on January 1, 2017, 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 2017 and 2018. Repairs in the amount of $8,500 in 2017 and $9,800 in 2018 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.

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:
Adjustment to Bond Interest ExpenseAdjustment to Bond Interest PayableDepreciation Not Recorded on Capitalized RepairsDepreciation Recorded on Improperly Capitalized RepairsOverstatement of 2017 Ending InventoryRepairs Erroneously Charged to the Equipment AccountRepairs Not Charged to Equipment AccountSales Erroneously Excluded in 2017 IncomeSales Erroneously Included in 2017 IncomeUnderstatement of 2017 Ending Inventory
Adjustment to Bond Interest ExpenseAdjustment to Bond Interest PayableDepreciation Not Recorded on Capitalized RepairsDepreciation Recorded on Improperly Capitalized RepairsOverstatement of 2017 Ending InventoryRepairs Erroneously Charged to the Equipment AccountRepairs Not Charged to Equipment AccountSales Erroneously Excluded in 2017 IncomeSales Erroneously Included in 2017 IncomeUnderstatement of 2017 Ending Inventory
Adjustment to Bond Interest ExpenseAdjustment to Bond Interest PayableDepreciation Not Recorded on Capitalized RepairsDepreciation Recorded on Improperly Capitalized RepairsOverstatement of 2017 Ending InventoryRepairs Erroneously Charged to the Equipment AccountRepairs Not Charged to Equipment AccountSales Erroneously Excluded in 2017 IncomeSales Erroneously Included in 2017 IncomeUnderstatement of 2017 Ending Inventory
Adjustment to Bond Interest ExpenseAdjustment to Bond Interest PayableDepreciation Not Recorded on Capitalized RepairsDepreciation Recorded on Improperly Capitalized RepairsOverstatement of 2017 Ending InventoryRepairs Erroneously Charged to the Equipment AccountRepairs Not Charged to Equipment AccountSales Erroneously Excluded in 2017 IncomeSales Erroneously Included in 2017 IncomeUnderstatement of 2017 Ending Inventory
Adjustment to Bond Interest ExpenseAdjustment to Bond Interest PayableDepreciation Not Recorded on Capitalized RepairsDepreciation Recorded on Improperly Capitalized RepairsOverstatement of 2017 Ending InventoryRepairs Erroneously Charged to the Equipment AccountRepairs Not Charged to Equipment AccountSales Erroneously Excluded in 2017 IncomeSales Erroneously Included in 2017 IncomeUnderstatement of 2017 Ending Inventory
Corrected Income Before Tax		$		$

Answer 1

For the above given question answer is drafted in paper with having notes to such answer, I have attached 2 paper for this answer out of which 1 paper contain answer content and other one is notes to the answer

əled Date : Ansr 2017 2018 ($) 73,100 90,000 Inwonne Before tax Corrections I sales exeone owly included in 2017 - instead of 2018 (41,300 41,300 1) 7900 (7900) ii) The inventory understated in 2017 (Refes Note vil Ajustment to bons interest Expense (refes Note- ii) (1,520) (14626) 7,600 8,055 - iv) Ordinary repeising ewuneusly churaged to equipment account (Refer Noterii) Corrected income before tox 62,730/1, 12,929

Date : Noterd (i) Inventory understated in 2017 will be incleses in Roofit in 2017 and decreule in postit in 2018 as Opening stoch will incluse in 2018 (ii) Bond face value Les I & Discount 2,roon 14,00 2,36, on In 2010. Inheet In 2017 2,36,000x 71.2 16,820 Loss Indeest hellen: 15,ou 1520 (2,36,0wt 1520) x7 - 16,626 est talen 15,oro 1,626 (iii) Repuis expense needs to be charged in P&L account but it is not chuged so profit will inceuse by repais amount bost Culso depreciation is consideres in P4 L account so depreciation is deducted from repan expense - In 2017 Repais srov Less' Depréintin sro In 2015 Repais 9900 Les) Dophiciatiny 980 8820 Less & Pofrection 765 in 2017 so55 (10% of 7 )