While preparing its year 3 financial statements, Dek Corp. discovered computational errors in its year 2 and year 1 depreciation expense. These errors resulted in overstatement of each year’s income by $25,000, net of income taxes. The following amounts were reported in the previously issued financial statements: Year 2 Year 1
Retained earnings, 1/1 $700,000 $500,000
Net income 150,000 200,000
Retained earnings, 12/31 $850,000 $700,000

Dek’s year 3 income is correctly reported at $180,000. Which of the following amounts should be adjusted to retained earnings and presented for net income in Dek’s year 3 and year 2 comparative financial statements?

Year Retained earnings Net income
year 2 --    150,000
year 3    ($50,000)      180,000
year 2 ($50,000) $150,000
year 3    --      180,000
year 2 ($50,000) $125,000
year 3    --      180,000
year 2 -- $125,000
year 3    --      180,000

Dek Corp.

The amounts should be adjusted to retained earnings and presented for net income in Dek’s year 3 and year 2 comparative financial statements are:

Year    Retained earnings  Net income

year 2       ($50,000)          $150,000

year 3           --                       180,000

Explanation:

a) Data and Calculations:

Years 1 and 2 net income overstated by $25,000 each.

                                              Year 2      Year 1

Retained earnings, 1/1      $700,000  $500,000

Net income                          150,000    200,000

Retained earnings, 12/31 $850,000  $700,000

b) With the above amounts, the retained earnings of Year 2 are adjusted by a negative $50,000 value, representing the overstated net income for years 1 and 2.  This will reduce Year 2's ending retained earnings to $800,000 ($850,000 - $50,000).  The second amount will simply state the net income for year 3 as it is.

advanced placement tests

the u.s. census bureau produces data on the population and economy nationwide. it can you to analyze the kind of people living in your neighborhood. it does not show you the market of people willing to buy your product or an existing market for your product. that will require more market research. the census bureau only gives you an insight to the demographics in your area.