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.

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%

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

= 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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