Question

The following information is available for Amos Company for the year ended December 31, 2017. Balance of retained earnings, December 31, 2016, prior to discovery of error, $859,000. Cash dividends declared and paid during 2017, $29,000. It neglected to record 2015 depreciation expense of $37,600, which is net of $6,900 in tax benefits. The company earned $223,000 in 2017 net income. Prepare a 2017 statement of retained earnings for Amos Company. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Answer:

Amos Company

Statement of retained earning

as on December 31, 2017

Retained Earning December 31, 2016    $859,000

Add: Net Income for 2018                       $223,000

Dividend                                                  -$29,000

Prior years error adjustment                  -$37,600  

Retained Earning December 31             $1,015,400

Explanation:

Retained Earning is an equity account and its balance is credit in nature. It is the accumulated balance of all the prior year's income / losses after paying all the dividend. This balance can be used for the dividend payment or reinvestment in the business.

Omission of depreciation expense understated the expenses for the year and overstated the profit of 2015, which ultimately overstated the retained earning value. we need to adjust this error in retained earning balance because it is adjustment of an prior year error, it will not be included in the current years net income calculations. It already netted off so we just simply adjust it in the retained earning with the value of $37,600.