Question

me l dule Design LayUUL 1 A Aa A D.A. 3 AL - AaBbCcDc AaBbCcDc AaBb C 1 Normal 1 No Spac... Heading 1 Paragraph Styles Question 2 On January 1, 2017, Harden Inc. posted a repair expense bill of $100,000 to the equipment account instead of the repair expense account. You are the new accountant for this business and you are in the process of preparing the 2018 financial statements when you notice that the $100,000 expenditure was recorded incorrectly in 2017. This error is discovered prior to the recording of the 2018 depreciation expense. The expenditure, posted in the equipment account, was also set up to be depreciated on a straight line basis. The assumed salvage value was $0 and the expected useful life was 10 years. The tax rate is 30% The unadjusted balance in retained earrings at January 1, 2018 was $725,000. The company has a December 31 year end and reported net income of $500,000 and paid dividends of $45,000 during 2018 Required: a) Calculate the earnings correction that Harden must show in the 2018 financial statements ku) Prepare the 2018 entry to record the correction of the 2017 error General Journal Account Titles and Explanation Debit Credit c) Present the retained earnings reconciliation that would appear on Hamden's statement of changes quity. DOLL

Answer 1

Answer-(a):

$ 725,000 100,000 10,000 27,000 662,000 Unadjusted retained earning as on Jan 01, 2018 Less: correction for Repair expense of 2017 Add: correction for Depreciation expense of 2017 Add: correction for Income tax expense of 2017 Adjusted retained earning as on Jan 01, 2018 Add: Reported net income for 2018 Less: Income tax @ 30% Net income after tax Total Less: Dividend paid Retained earning as on December 31, 2018 $ 500,000 150,000 350,000 1,012,000 45,000 $967,000

Answer-(b):

Date Debit ($) Credit ($) 100,000 100,000 2018 10,000 Account Tiltles & Explanation Repair expense Equipment (to transfer equipment cost to repair expense account) Accumulated depreciation Depreciation (100,000 / 10) (to record correction depreciation & accumulated depreciation) Income tax payable Income tax expense [(100,000 - 90,000) 30%] (to reduce excess tax expense booked) 2018 10,000 27,000 2018 27,000