Question

The Dayton Corporation began the current year with a retained earnings balance of $32,000. During the year, the company corrected an error made in the prior year, which was a failure to record depreciation expense of $3,000 on equipment. Also, during the current year, the company earned net income of $12,000 and declared cash dividends of $7,000. Compute the year-end retained earnings balance.

1. $34,000

2. $37,000

3. $41,000

4. $44,000

Answer 1

The year-end retained earnings balance for the Dayton Corporation after correcting for depreciation error, accounting for net income, and subtracting dividends declared is $34,000.

Step-by-step explanation:

The year-end retained earnings balance for Dayton Corporation is $34,000. This calculation is based on beginning retained earnings and adjustments for corrected errors, net income, and dividends.

Here's a step-by-step explanation:

1. Start with the beginning retained earnings of $32,000.
2. Subtract the correction of the $3,000 error not recorded in the prior year (Retained earnings are adjusted downwards for prior period errors).
3. Add the net income earned during the current year, which is $12,000.
4. Subtract the cash dividends declared during the year, which total $7,000.
5. The adjusted retained earnings balance is: $32,000 - $3,000 + $12,000 - $7,000 = $34,000.