Leonard Corporation reports the following information:Correction of overstatement of depreciation expense Leonard should report retained earnings, 1/1/14, as adjusted at
A) $3,570,000.
B) $4,000,000.
C) $4,430,000.
D) $5,110,000.

Question

Leonard Corporation reports the following information:Correction of overstatement of depreciation expense  Leonard should report retained earnings, 1/1/14, as adjusted at
A) $3,570,000. 
B) $4,000,000. 
C) $4,430,000. 
D) $5,110,000.

Quizplus · Accepted Answer

Since the information provided only mentions a correction of overstatement of depreciation expense, we can assume that the adjustment only affects the accumulated depreciation and retained earnings accounts. Therefore, we can use the following formula to calculate the adjusted retained earnings:

Adjusted Retained Earnings = Retained Earnings, 1/1/14 + Net Income - Dividends - Correction of Depreciation Overstatement

We are not given Net Income or Dividends in the problem, but we are given that there was a correction of overstatement of depreciation expense. This implies that there was an overstatement of accumulated depreciation in the previous years, which would have decreased the reported net income and therefore the reported retained earnings. To correct for this, we need to increase the reported retained earnings by the amount of the overstatement.

Therefore, we will look for the amount of the overstatement in the depreciation expense account, which is not given in the problem. Without this information, we cannot determine the exact amount of the adjustment or the exact amount of the adjusted retained earnings. However, if we assume that the overstatement was significant enough to affect the reported retained earnings, then we can eliminate choices A and B as they are lower than the original reported retained earnings of $4,000,000. Choice D is significantly higher than the original reported retained earnings, so it is unlikely to be the correct answer. Therefore, the best choice based on the information given is C, $4,430,000, which is the highest option that is still within a reasonable range of the original reported retained earnings.

Leonard Corporation Reports the Following Information:Correction of Overstatement of Depreciation