Question

P4-6 (Retained Earnings Statement, Prior Period Adjustment) Below is the Retained Earnings account for the year 2012 for Acadian Corp.

Retained earnings, January 1, 2012 $257,600
Add:
Gain on sale of investments (net of tax) $41,200
Net income 84,500
Refund on litigation with government, related to the year 2009 (net of tax) 21,600
Recognition of income earned in 2011, but omitted from income statement
in that year (net of tax) 25,400 172,700
430,300
Deduct:
Loss on discontinued operations (net of tax) 35,000
Write-off of goodwill (net of tax) 60,000
Cumulative effect on income of prior years in changing from LIFO to FIFO
inventory valuation in 2012 (net of tax) 23,200
Cash dividends declared 32,000 150,200
Retained earnings, December 31, 2012 $280,100
Instructions

• (a) Prepare a corrected retained earnings statement. Acadian Corp. normally sells investments of the type mentioned above. FIFO inventory was used in 2012 to computenet income.
• (b) State where the items that do not appear in the corrected retained earnings statement should be shown.

Answer 1

a)

Retained Earnings, Jan 1, as reported					$257,600
Correction for understatement of net income in prior period					$25,400
	(Correction error)
Correction for overstatement of net income in prior period					($23,200)
	(Change in accounting principle)
Retained Earnings, Jan 1, as adjusted					$259,800
Add:	Net Income (Changes in Income Statement)				$52,300
Less:	Cash dividends			$32,000
Retained Earnings, December 31					$280,100

b) are shown in paranthesis.

This is the impact on income statement

Income from Continuing Operations XXX

(add) Gain on Sale of Investments ($41,200)

(less) Loss on Discontinued Operations ($35,000)

(add) Refund on litigation with the government ($21,600)

(less) Write off of Goodwill ($60,000)

= Net effect on income of-$32,200

Net Income as of 12/31/2012 is $52,300 and should be reported as such on corrected Retained Earnings Statement