Reference no: EM131913056

Problem

In May 20×5, 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 20×2, 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 20×2. 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.

Required: Calculate the impact on Net Income (after taxes) for years, 20X2 and 20X3.