In the Previous Year, a Firm Failed to Record Premium

Multiple Choice

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:

A) Understated by $7,000.
B) Overstated by $7,000.
C) Understated by $33,000.
D) Overstated by $33,000.