Big River Enterprises is subject to a 40% tax rate and has a December 31 year-end.During 2010,the accountant discovered that in 2009 some interest expense relative to a note payable had not been accrued.The amount of omitted interest totaled $53,800.The prior period adjustment to beginning retained earnings will equal:

Question

Quizplus · Accepted Answer

The correct adjustment to beginning retained earnings for the omitted interest expense is the after-tax amount, which is calculated as $53,800 - ($53,800 * 40%) = $53,800 - $21,520 = $32,280. Since it's an expense that was omitted, it would reduce retained earnings, hence the negative sign.

Big River Enterprises Is Subject to a 40% Tax Rate