In the current year, Jacksonville Company has discovered a material prior-period error in its calculation of income. The company had incorrectly debited an asset costing $120,000 to an expense account. The related income tax expense was $42,000. If beginning Retained Earnings in the current period is $3,703,000, net income is $1,011,000 and dividends declared are $267,000, ending Retained Earnings equals:
A)$4,525,000.
B)$5,059,000.
C)$4,369,000.
D)$4,609,000.
E)$4,447,000.

Question

Quizplus · Accepted Answer

The error resulted in an understatement of net income by $120,000 and an overstatement of income tax expense by $42,000. Therefore, the beginning retained earnings should be increased by $120,000 and the income tax expense should be decreased by $42,000. The ending retained earnings is calculated as follows:Beginning Retained Earnings + Net Income - Dividends Declared = Ending Retained Earnings$3,703,000 + $1,011,000 - $267,000 = $4,525,000

In the Current Year, Jacksonville Company Has Discovered a Material