Question

Moorman Corporation reports the following information:

Correction of understatement of depreciation expense
in prior years, net of tax $ 1,290,000
Dividends declared 960,000
Net income 3,000,000
Retained earnings, 1/1/20, as reported 6,000,000
Moorman should report retained earnings, 1/1/20, as adjusted at
a. $4,710,000.
b. $6,000,000.
c. $7,290,000.
d. $9,330,000.

Answer 1

To find the adjusted retained earnings of Moorman Corporation, you subtract the correction for the depreciation understatement from the originally reported retained earnings. The adjusted retained earnings at 1/1/20 should be $4,710,000.

Step-by-step explanation:

The student's question relates to the adjustment of the retained earnings balance of Moorman Corporation due to the correction of an understatement of depreciation expense from prior years. To adjust the opening balance of retained earnings, we need to reverse the understatement of depreciation. Thus, the adjusted retained earnings at the beginning of the year should be the original reported amount minus the correction. The calculation is as follows:

• Originally reported retained earnings, 1/1/20: $6,000,000
• Correction of understatement of depreciation expense, net of tax: -$1,290,000
• Retained earnings, 1/1/20, as adjusted: $6,000,000 - $1,290,000 = $4,710,000

Therefore, Moorman Corporation should report retained earnings, 1/1/20, as adjusted at $4,710,000.