Question

Due to an error in computing depreciation expense, Prewitt Corporation overstated accumulated depreciation by $21 million as of December 31, 2021. Prewitt has a tax rate of 25%. Prewitt's retained earnings as of December 31, 2021, would be: (Round million answer to 2 decimal places.)

Answer 1

It is understated the retained earnings by $15,750,000

Step-by-step explanation:

The computation of the retained earnings is shown below:

Accumulated depreciation $21,000,000

Less: Deferred tax liability $5,250,000 ($21,000,000 × 0.25)

Retained earnings $15,750,000

Hence, the retained earning is $15,750,000

It is understated the retained earnings by $15,750,000

The same is to be considered