Answer:
C Co.
Adjusted beginning retained earnings in 2021 Statement of Retained Earnings:
$215,000
Explanation:
Reported Retained Earnings balance at December 31, 2020 = $200,000
Prepaid insurance = $30,000 for three years
Insurance Expense for 2020 = $30,000
Insurance Expense for each of the three years = $10,000 ($30,000/3)
Insurance Expense over-expensed by $20,000 ($30,000 - $10,000)
Deferred Tax Liability = $5,000 ($20,000 * 25%)
Therefore, adjusted Retained Earnings = $215,000 ($200,000 + 20,000 - 5,000)
b) The Retained Earnings should have been $220,000 instead of $200,000 and there must be accounted for the deferred tax liability arising from the deduction of the Insurance expense that should have been accounted for in subsequent years.
