The following information relates to the Smith Company: $\begin{array}{ll}
2010 \text { cash dividend declared } & \$ 400 \
\text { Unadjusted (reported) retained eamings, January 1, 2010 } & ? \
2010 \text { net income } & 480 \
\text { Error in 2009-Understatement of ending inventory, } \
\text { error found in 2010 } & 150\
\text { Unadjusted (reported) retained earnings, December 31, } 2010& 1,400
\end{array}$ What is the unadjusted January 1, 2010, balance in retained earnings?
A)$1, 170
B)$1, 320
C)$1, 470
D)$1, 630

Question

The following information relates to the Smith Company: $\begin{array}{ll}
2010 \text { cash dividend declared } & \$ 400 \
\text { Unadjusted (reported) retained eamings, January 1, 2010 } & ? \
2010 \text { net income } & 480 \
\text { Error in 2009-Understatement of ending inventory, } \
\text { error found in 2010 }  & 150\
\text { Unadjusted (reported)  retained earnings, December 31, } 2010& 1,400
\end{array}$   What is the unadjusted January 1, 2010, balance in retained earnings?
A)$1, 170
B)$1, 320
C)$1, 470
D)$1, 630

Quizplus · Accepted Answer

To find the unadjusted January 1, 2010, balance in retained earnings, we start with the unadjusted December 31, 2010, balance of $1,400. We subtract the 2010 net income of $480 and add back the 2010 cash dividend declared of $400. However, we do not adjust for the inventory error found in 2010 because it pertains to 2009 and would have already been reflected in the beginning balance of retained earnings for 2010. Therefore, the calculation is $1,400 - $480 + $400 = $1,320.

The Following Information Relates to the Smith Company What Is the Unadjusted January 1, 2010, Balance in Retained