Jethroe Co. reported a retained earnings balance of $200,000 at December 1, year 4. In June...
Jethroe Co. reported a retained earnings balance of $200,000 at December 1, year 4. In June year 5, Jethroe discovered that merchandise costing $50,000 had not been included in inventory in its year 4 financial statements. Jethroe has a 21% tax rate.
What amount should Jethroe report as adjusted beginning retained earnings in its statement of retained earnings at December 31, year 5?
Multiple Choice
-
$150,000
-
$189,500
-
$200,000
-
$239,500
Homework Answers
Answer
--Inventory omitted to be recorded will lead to Net Income (and Retained earnings) being understated.
--When inventory is added to books of account, Net Income of previous year will increase. Tax rate is 21% and hence, tax on increased net income because of omitted inventory will be deducted.
--Increase in Retained earnings balance, net of tax = $ 50000 -
(50000 x 21%)
= 50000 - 10500
= $ 39,500
--Adjusted beginning retained earnings = 200000 + 39500 = $ 239,500
--Correct Answer Option #4: $ 239,500
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