1.
Retained earnings, 1/1/20, as reported = $6,000,000
Tax rate = 40%
Correction of understatement of depreciation expense in prior years, before taxes = $1,075,000
Net effect Correction of understatement of depreciation expense in prior years, after taxes = 1,075,000 - 1,075,000 x 40%
= 1,075,000 - 430,000
= $645,000
Beginning balance of retained earnings after prior period adjustment = Retained earnings, 1/1/20, as reported - Net effect Correction of understatement of depreciation expense in prior years, after taxes
= 6,000,000 - 645,000
= $5,355,000
2.
Income before income tax = $2,500,000
Tax rate = 40%
Income tax expense = Income before income tax x Tax rate
= 2,500,000 x 40%
= $1,000,000
Net income = Income before income tax - Income tax expense
= 2,500,000 - 1,000,000
= $1,500,000
Retained earnings statement
For the year ended December 31, 2020
Balance, January 1, as adjusted |
5,330,000 |
Add: Net income |
1,500,000 |
6,830,000 |
|
Less: Cash dividends |
- 480,000 |
Balance, December 31 |
6,350,000 |
Retained earnings, 12/31/20 = $6,350,000
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