Retained earnings

1. In 2009 Kieso Enterprises failed to record depreciation expense of $30,000. The accountant discovered this error in 2010. Kieso is subject to a 35 percent tax rate.

What is the effect of this error on retained earnings?

2. In 2009 Cummings Company, which is subject to a 30 percent tax rate, recognized interest revenue of $15,000. In January 2010, the accountant discovered that the correct amount of interest revenue for 2009 was $25,000.

What is the effect of this error on the 2010 statement of owners’ equity?

Devona Enterprises began fiscal 2010 on January 1 with 1 million shares of common stock authorized and 300,000 shares issued and outstanding. The par value of the common stock is $0.50 per share and the additional paid-in capital was $5,037,500 on January 1, 2010. On March 15, Devona issued an additional 50,000 shares of common stock for $21 per share. On October 31, Devona purchased 10,000 shares of common stock for $19 per share to be held as treasury stock.

Show how these events would be reported on the 2010 Statement of Owners’ Equity.

 

Solution:

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