Frazz Corporation is a privately-held manufacturer of industrial equipment. For calendar year 2009, Frazz reported a net income before taxes of $684,300. However, because of turnover in the accounting department, some errors were made. Given the following information, compute the correct net income before taxes for Frazz. Explain your answer.
- On March 31, 2009, Frazz paid $48,000 rent in advance for a storage facility. The entire payment was debited to Rent Expense. The payment was for the period April 1, 2009 to March 31, 2010.
- On January 2, 2009, Frazz put in service new office furniture with a cost of $26,000, and estimated salvage value of $5,000. Estimated useful life of the furniture is 14 years, but the depreciation calculation (straight-line method) erroneously used 7 years.
- On December 30, 2009, Frazz shipped a custom-order machine to a customer, recording sales revenue of $132,500, and COGS of $98,700. The contract required installation and calibration by Frazz, which was completed January 20, 2010.
- Early in the year, Frazz began offering for sale a pre-paid three-year technical support plan for its equipment. Payments of $60,000 were received for plan coverage during the year, and recorded as Fee Revenue. It is estimated that 14% of this amount was earned in 2009, with the rest relating to 2010 and 2011.
- During 2009, Frazz had outstanding an average of $1,170,000 in bank loans, at an average rate of 6%. Interest payments relating to 2009 were made in the amount of $37,300 and recorded as Interest Expense, but no other entries were made.
- At the beginning of 2009, Allowance for Bad Debts was $37,800. Uncollectible accounts of $32,000 were written off during the year, and charged to Bad Debt Expense. No other entries were made. It is estimated that the ending balance of the allowance should be $40,400.