Q15SE_2

Question

Analyzing the effect of prior-period adjustments

Taylor Corporation discovered in 2019 that it had incorrectly recorded in 2018 a cash payment of $70,000 for utilities expense. The correct amount of the utilities expense was $35,000.

Requirements

2. How should this error be reported in the 2019 financial statements?

Step-by-Step Solution

Verified

Answer

The error will be added as a prior period adjustment of $35,000 to the beginning balance of the retained earnings in the Statement of Retained Earnings.

1Step 1: Basic Introduction-

Retained earnings are the amount of profit remains with a corporation after payment of all direct costs, indirect costs, income taxes and dividends to stockholders of the corporation.

2Step 2: Reporting the error in 2019-

Statement of Retained Earnings
Beginning retained earnings	xxx
Add: Prior period adjustment ($70,000 - $35,000)	$35,000
Less: Dividend paid (if any)	(xxx)
Ending retained earnings	xxx

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