Disclosure of a Prior Period Adjustment
Refer to Practice 20 21. Assume that the error was found in May 2008. Net income for 2008 (correctly stated) was $25,000. Dividends for 2008 were $10,000. The Retained Earnings balance as originally reported at the end of 2007 was $100,000. Prepare a statement of retained earnings for 2008.
Practice 20 21
Incorrect Capitalization
In January 2006, the company made $10,000 in expenditures. These expenditures should have been expensed immediately. Instead, the company recorded this $10,000 payment as a purchase of equipment with a useful life of 10 years and $0 expected salvage value. The company uses straight line depreciation. The company proceeded to depreciate this “equipment.” Make the necessary correcting entry, assuming that (1) the error was found in May 2008 after the 2007 books had been closed and (2) the error was found in May 2009 after the 2008 books had been closed. Ignore income taxes.