A corporation reported a balance in retained earnings of $16,500 in its December 31, year 1, balance sheet. During year 1, the company incurred a net loss of $2,500, declared a cash dividend of $1,000, issued additional common shares for $5,000, and recorded a correction of prior years' error, net of tax, of $500 (credit). The balance in retained earnings at January 1, year 1, must have been:
A) $19,500
B) $20,000
C) $20,500
D) $21,500

Question

Quizplus · Accepted Answer

The balance in retained earnings at January 1, year 1, was $20,000. The net loss of $2,500 and the cash dividend of $1,000 reduced retained earnings by $3,500. The issuance of additional common shares for $5,000 increased retained earnings by $5,000. The correction of prior years' error, net of tax, of $500 (credit) increased retained earnings by $500. Therefore, the balance in retained earnings at January 1, year 1, was $20,000.

A Corporation Reported a Balance in Retained Earnings of $16,500