Belmont Industries is subject to a 35% tax rate and has a December 31 year-end.During 2010,the accountant discovered an error made in 2009 relative to a capital expenditure that was incorrectly expensed.The total pre-tax amount of the error was $67,500.The prior period adjustment to beginning retained earnings will equal:

Question

Quizplus · Accepted Answer

The correct adjustment is the after-tax amount of the error. Since the error was $67,500 and the tax rate is 35%, the tax effect is $67,500 * 35% = $23,625. Therefore, the net adjustment is $67,500 - $23,625 = $43,875. This amount should be added to the beginning retained earnings, hence option D is correct.

Belmont Industries Is Subject to a 35% Tax Rate and Has