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Topic: Retained Earnings Question ( Topic Closed)
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ecstyle Newbie
Joined: 10 Feb 2008
Online Status: Offline Posts: 9
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Posted: 03 May 2008 at 02:45 | IP Logged
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I have a multiple choice question from an accounting class and not sure about my answer...
Q: A corporation provides the following information:
1. Correction of understatement of depreciation expense in prior years, net of tax = $430, 000 2. Dividends declared = $320,000 3. Net Income =$1,000,000 4. Retained Earnings, 1/1//07, as reported = $2,000,000
The corporation should report earnings, 1/1/07 as adjusted at:
a) $1,570,000 b) $2,000,000 c) $2,430,000 d) $3,110,000
Is this a trick question? I was thinking about going with b) $2,000,000 but hesitant to choose this as my final answer.
any suggestions from any accounting pros out there?
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lvn23 Newbie
Joined: 31 May 2008 Location: United States
Online Status: Offline Posts: 15
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Posted: 31 May 2008 at 12:56 | IP Logged
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The answer is A. This specific topic deals with prior period adjustments (PPAs) and restating Retained Earnings. The formula is:
Beginning R/E as previously reported +/- (Under)/Overstated Depreciation ----------------------------------- R/E as Restated
+ Net Income (Dividends) ----------------------------------- Ending R/E
This Q was only asking up to the 3rd line - R/E as Restated - therefore, it's $2,000,000 - $430,000 = $1,570,000.
Edited by lvn23 on 31 May 2008 at 12:57
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