Alexander Company reported the ending balance of Retained earnings as $400 000 on 31 December 2013. During the first month of 2014, they discovered an error in the ledger which had the effect of overstating profit in 2013 by $45 000. At the end of 2014, they included this item as a prior period adjustment. Year 2014 results included $52 000 of profit and $15 000 of dividends paid. What amount would be shown as the ending balance of Retained earnings on the 31 December 2014 financial statements?

Question

Quizplus · Accepted Answer

The ending balance of Retained Earnings on 31 December 2013 was $400,000. The error overstated profit by $45,000, so the corrected beginning balance for 2014 is $400,000 - $45,000 = $355,000. Adding the 2014 profit of $52,000 gives $407,000. Subtracting the dividends of $15,000 results in an ending balance of $392,000.

Alexander Company Reported the Ending Balance of Retained Earnings as $400