Question

Leonard Corporation reports the following information:

Correction of overstatement of depreciation expense
in prior years, net of tax $ 645,000
Dividends declared 480,000
Net income 1,500,000
Retained earnings, 1/1/20, as reported 6,000,000
Leonard should report retained earnings, 12/31/20, at
a. $5,355,000.
b. $6,375,000.
c. $7,020,000.
d. $7,665,000.

Answer 1

To calculate the retained earnings for Leonard Corporation on December 31, 2020, we need to consider the changes in net income, dividends declared, and the correction of the overstatement of depreciation expense in prior years.

Step-by-step explanation:

To calculate the retained earnings for Leonard Corporation on December 31, 2020, we need to consider the changes in net income, dividends declared, and the correction of the overstatement of depreciation expense in prior years.

Starting with the retained earnings as reported on January 1, 2020, we add the net income and subtract the dividends declared to get the adjusted retained earnings. Finally, we add the correction of the overstatement of depreciation expense to arrive at the final retained earnings for the year.

In this case, the calculation would be:

Retained earnings, 12/31/20 = Retained earnings, 1/1/20 + Net income - Dividends declared + Correction of overstatement of depreciation expense = 6,000,000 + 1,500,000 - 480,000 + 645,000 = $7,665,000.

The correct option is d. $7,665,000.