Accounting & Bookkeeping Forum

[ecstyle]

I have a multiple choice question from an accounting class and not sure about my answer...

Q: A corporation provides the following information:

1. Correction of understatement of depreciation expense in prior years, net of tax = $430, 000
2. Dividends declared = $320,000
3. Net Income =$1,000,000
4. Retained Earnings, 1/1//07, as reported = $2,000,000

The corporation should report earnings, 1/1/07 as adjusted at:

a) $1,570,000
b) $2,000,000
c) $2,430,000
d) $3,110,000

Is this a trick question? I was thinking about going with b) $2,000,000 but hesitant to choose this as my final answer.

any suggestions from any accounting pros out there?

[QBConsultant]

Well, it has been a few years, but I'll try:

Since you want the balance as of 1/1/07, then wouldn't it be the $2,000,000 as of 1/1/07, minus the $430,000 correction of prior depreciation for a balance of $1,570,000 as of 1/1/07?

But it isn't clear if the income is from the current year or included in the 1/1/07 figure. So, don't blame me if you get it wrong!

[ecstyle]

That was the answer correct!

thanks QB