Question

Dayton Corporation began the current year with a retained earnings balance of $18,180. During the year, the company corrected an error made in the prior year, which was a failure to record a depreciation expense of $3,686 on equipment. Also, during the current year, the company earned net income of $14,406 and declared cash dividends of $4,469. Compute the year-end retained earnings balance.

Answer 1

Answer:

$24,431

Explanation:

Equity which represents the amount owed to the owners of the business includes retained earnings (which is the accumulation of the net income/loss over the years less dividends paid) and common shares.

If the company failed to record a depreciation expense of $3,686 on equipment, the retained earnings would have been overstated as a result of the overstatement of the net income.

the movement in the retained earnings may be expressed as

opening balance + net income - omitted expense - dividend declared = closing balance

hence the closing balance

= $18,180 - $3,686 +$14,406 - $4,469

= $24,431