14. The following information relates to the Smith Company for 2002: Cash divide

Question

14.       The following information relates to the Smith Company for 2002:

Cash dividend declared

$ 300

Retained earnings, January 1, 2006

?

Net income

580

Error in 2005 - overstatement of ending inventory; error

  found in 2006

150

Retained earnings, December 31, 2006

1,400

What was the unadjusted January 1, 2006, balance in retained earnings?

a.

$1,420

b.

$1,120

c.

$1,270

d.

$1,170

Cash dividend declared

$ 300

Retained earnings, January 1, 2006

?

Net income

580

Error in 2005 - overstatement of ending inventory; error

  found in 2006

150

Retained earnings, December 31, 2006

1,400

Explanation / Answer

retained earnings ending balance = begining retained + net income - dividends

1400 =  begining retained + 580 - 300

begining retained = 1400 - 280 = 1120

so answer is b ..1120

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