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Intermediate Accounti ng-I (1-2. (Chapter 4): A442 Error Correction In May 20XS, the newly appointed controller of Butch Baking Corporation conducted a thorough
review of past accounting, particularly of transactions that exceeded the company's normal level of
materiality. As a result of his review, he instructed the company's chief accountant to correct the error
below: In 20X2, the company made extensive improvements to the baking process and installed a substantial
amount of new equipment. The entire cost of the process improvements and equipment was
accidentally charged to income as restructuring expense in 20XZ. However, the equipment should
have been capitalized and added to the factory equipment account. The cost of the equipment was
$1,200,000. Butch depreciates its factory equipment on the straight-line basis over 10 years. A full
year's depreciation is charged in the year that equipment is acquired. The company’s tax rate is 30%. Additional information: The Company's net income before taxes was $3,500,000 for 20x2 and
$4,400,000 for 20x3.

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2002 Equipment charge to expense $1,200,000 Less: Understated Depreciation (1,200,000/10 years)... View the full answer

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