Question

C Co. reported a retained earnings balance of $260,000 at December 31, 2017. In September 2018,...

C Co. reported a retained earnings balance of $260,000 at December 31, 2017. In September 2018, C determined that insurance premiums of $45,000 for the three-year period beginning January 1, 2017, had been paid and fully expensed in 2017. C has a 35% income tax rate. What amount should C report as adjusted beginning retained earnings in its 2018 statement of retained earnings?

Multiple Choice

$275,000.

$289,250.

$279,500.

$290,000.

Business   Accounting   
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Answer #1

Prior Period adjustments for excess insurance premium charged in year 2017 will be made in beginning of 2018.

Total Insurance premium for three years = $45,000

Insurance premium for each year = $45,000/3 = $15,000 per year

Excess insurance premium charged in 2017 = $15,000*2 yrs = $30,000

Tax Rate = 35%

Prior period adjustments after tax = Excess insurance premium*(1-tax rate)

= $30,000*(1-0.35) = $19,500

Adjusted Beginning Retained Earnings Balance

= Retained Earnings Balance as on Dec 31, 2017+Prior Period Adjustment

= $260,000+$19,500 = $279,500

Therefore C should report $279,500 as adjusted beginning retained earnings in its 2018 statement of retained earnings.

Hence the correct option is C) $279,500.

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