C Co.reported a retained earnings balance of $200,000 at December 31,2015.In September 2016,C determined that insurance premiums of $30,000 for the three-year period beginning January 1,2015,had been paid and fully expensed in 2015.C has a 30% income tax rate.What amount should C report as adjusted beginning retained earnings in its 2016 statement of retained earnings?

Question

Quizplus · Accepted Answer

The insurance premiums should have been expensed over three years, not fully in 2015. The correction involves deferring $20,000 of the expense to future years ($30,000 total premium - $10,000 for 2015). The tax effect on this adjustment is $6,000 ($20,000 x 30%). Therefore, the net adjustment to retained earnings is $14,000 ($20,000 - $6,000). The adjusted beginning retained earnings is $200,000 + $14,000 = $214,000.

C CoReported a Retained Earnings Balance of $200,000 at December 31,2015