question archive 2 points While preparing its financial statements for 2016, June Company discovered computational errors in its 2015 and 2014 depreciation expense
2 points While preparing its financial statements for 2016, June Company discovered computational errors in its 2015 and 2014 depreciation expense
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2 points While preparing its financial statements for 2016, June Company discovered computational errors in its 2015 and 2014 depreciation expense. These errors resulted in overstatement of each year's income by P25,000, net of income taxes. The following amounts were reported in the previously issued financial statements: 2015 2014 Retained earnings, January 1 700,000 500,000 Net income 150.000 200.000 Retained earnings, December 31 850.000 700,000 June's net income for the year 2016 is correctly reported at P500,000 and dividends of P100,000 were de- clared. What is the balance of retained earnings on December 31, 2016? a. 1,200,000 O b. 1,250,000 O c. 1,300,000 O d. 1,225,000
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A. 1,200,000
Step-by-step explanation
2016 Beginning RE = 850,000
Net Income = 500,000
Dividends Paid = 100,000
Adjustments = error in 2014 + error in 2015 = 25,000 + 25,000 = 50,000
Error is deducted since it is an overstatement of net Income
2016 Ending RE = Beginning + Net Income - Dividends Paid - Error= 850,000 + 500,000 -100,000 - 50,000 = 1,200,000
OR you can also solve it like this;
| 2016 | 2015 | 2014 | |||
| Retained Earnings January 1 | 800,000 | 675,000 | 500,000 | ||
| Net Income | 500,000 | 125,000 | 175,000 | ||
| Less: Dividends Paid | (100,000) | ||||
| Retained Earnings Dec 31 | 1,200,000 | 800,000 | 675,000 |
Last year's RE is next Year's Beginning RE
Since Net Income Is Overstated you need to deduct the overstatement
2014 Net Income = 200,000 - 25,000 = 175,000
2015 Net Income = 150,000 - 25,000 = 125,000
