The Whyme Corporation has recently discovered that their accountant had failed t

Question

The Whyme Corporation has recently discovered that their accountant had failed to make general journal entries for the payment of dividends in 2003 and 2004. In order to correct this oversight, the company is now required to:
a. prepare correcting entries in the records for 2003 and 2004 and issue new financial statments.
b. record payments for 2003 and 2004 in the adjusting entries for 2005.
c. correct the oversight by adjusting the retained earnings account.
d. not make an entry for the current dividends until the amount of the errors in 2003 and 2004 are absorbed.

Explanation / Answer

        Payment of dividends are not considered an expense .  It is closed directly to the retained earnings account. In order to correct this oversight, by adjusting the retained earnings account.

a) False.      Correcting entries in the records for 2003 and 2004 and issue of new financial statement is                     not required.

b) False.       This is not related to 2005 year.

c) True.        This is affected on retained earnings.

d)False.         Entries can always absorbed.

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