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Chapter 22: 22-7BE (page 1307)

At January 1, 2017, Beidler Company reported retained earnings of \(2,000,000. In 2017, Beidler discovered that 2016 depreciation expense was understated by \)400,000. In 2017, net income was \(900,000 and dividends declared were \)250,000. The tax rate is 40%. Prepare a 2017 retained earnings statement for Beidler Company

Short Answer

Expert verified

The depreciation error is $240,000, and the closing retained earnings are $2,410,000

Step by step solution

01

Calculation of depreciation error

Depreciationerror=UnderstandDepreciationexpense脳(1-Taxrate)=400,000脳(1-0.40)=$240,000

02

Preparation of statement of retained earnings

Retained Earnings Statement

Retained Earnings, January 1

2,000,000

Less: Correction Of depreciation Error

-240,000

Retained Earnings, January 1, as adjusted

1,760,000

Add: net Income

900,000

Less: dividends

-250,000

Retained earnings

2,410,000

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Most popular questions from this chapter

Discuss briefly the three approaches that have been suggested for reporting changes in accounting principles.

Question: At the beginning of 2017, Wertz Construction Company changed from the completed-contract method to recognizing revenue over time (percentage-of-completion) for financial reporting purposes. The company will continue to use the completed-contract method for tax purposes. For years prior to 2017, pretax income under the two methods was as follows: percentage-of-completion \(120,000, and completed-contract \)80,000. The tax rate is 35%. Prepare Wertz鈥檚 2017 journal entry to record the change in accounting principles.

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(Error Analysis) When the records of Debra Hanson Corporation were reviewed at the close of 2018, the following errors were discovered. For each item, indicate by a check mark in the appropriate column whether the error resulted in an overstatement, an understatement, or had no effect on net income for the years 2017 and 2018.

2017 2018 Over- Under- No Over- Under- No Item statement statement Effect statement statement Effect

1. Failure to record amortization of patent in 2018.

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4. Failure to record accrued interest on notes payable in 2017; that amount was recorded when paid in 2018.

5. Failure to reflect supplies on hand on the balance sheet at end of 2017.
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