In the previous year, a firm failed to record premium amortization of $40,000 and $30,000, respectively, on its bonds payable and held to maturity bond investments. these errors affect both income before tax and taxable income. the firm's tax rate is 30%. as a result of this error, net income was:

Understated by $7,000.

Explanation:

Particulars                                                         Amount ($)

Amortization of Premium on bonds payable40000

Amortization of Premium on Investments         (30000)

Understated Gain10000

Less : Tax @ 30% ($10000*30%)(Deferred tax liability)(3000)

Understated Net Income7000

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