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, 1/1/17, as reported $6,000,000

What should Moorman report retained earnings as on 12/31/17?

Answer 1

Moorman Corporation should report retained earnings of $9,330,000 on 12/31/17, calculated by adjusting the starting balance with the correction for depreciation, net income, and dividends declared.

Step-by-step explanation:

To calculate Moorman Corporation's retained earnings as of 12/31/17, we need to adjust the opening balance of retained earnings with the correction of understatement, add net income, and subtract dividends declared. The correction of the understatement of depreciation is already net of tax, so we can use the provided figure directly. Here's the calculation:

• Starting Retained Earnings (1/1/17): $6,000,000
• Add: Correction of understatement of depreciation expense: $1,290,000
• Add: Net Income: $3,000,000
• Subtract: Dividends Declared: $960,000

The adjusted Retained Earnings as of 12/31/17 would then be:

$6,000,000 + $1,290,000 + $3,000,000 - $960,000 = $9,330,000

Therefore, Moorman Corporation should report retained earnings of $9,330,000 on its balance sheet as of 12/31/17.