Question

Flushing, Inc. initially reported a retained earnings balance of $100,000 at December 31, 2020. In May...

Flushing, Inc. initially reported a retained earnings balance of $100,000 at December 31, 2020. In May 2021, Flushing discovered an error: Insurance premiums of $60,000 for the three-year period beginning July 1, 2020, had been paid and fully expensed in 2020.

What amount should Flushing report as adjusted beginning retained earnings in its 2021 statement of retained earnings?

Multiple Choice

  • $100,000

  • $110,000

  • $160,000

  • $150,000

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Answer #1

Answer: Option $150,000

Retained Earnings Balance at the end of Dec 31 2020 = $100,000

Insurance premium debited = $60000

Actually the insurance premium is for 3 years but the whole amount is debited as expense in current year

Insurance Expense to be Debited for the year 2020 = $60,000/3*6/12 =$10000

So Actual amount of retained Earnings at beginning of 2021 = Retained Earnings Balance + Insurance premium Debited - Actual insurance premium to be debited

Actual Beginning Retained Earnings in 2021 = $100,000 +$60000 - $10,000 = $150,000

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