C Co. reported a retained earnings balance of $200,000 at December 31, 2012. In September 2013, C determined that insurance premiums of $30,000 for the three-year period beginning January 1, 2012, had been paid and fully expensed in 2012. C has a 30% income tax rate. What amount should C report as adjusted beginning retained earnings in its 2013 statement of retained earnings?
A)$210,000.
B)$214,000.
C)$220,000.
D)$221,000.

Question

Quizplus · Accepted Answer

The insurance premium should have been expensed over three years, not fully in 2012. The error correction increases 2012 income by $20,000 ($30,000/3 * 2 years), and after tax ($20,000 * (1 - 0.30) = $14,000), the adjusted retained earnings is $200,000 + $14,000 = $214,000.

C Co Reported a Retained Earnings Balance of $200,000 at December