Question 1

At the beginning of Year 1, Delta Corp. had Retained Earnings of $500,000. During Year 1, Delta reported Net Income of $150,000, declared cash dividends of $40,000, and discovered a material error in Year 0 depreciation that understated Year 0 expense by $20,000 (net of tax). What is the Retained Earnings balance at December 31, Year 1?

Accepted Answer

Roll forward Retained Earnings: Beginning Balance +/- Prior Period Adjustments (Error corrections) + Net Income - Dividends Declared = Ending Balance.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Getting the direction of the error correction wrong; ignoring dividends.

How to approach this question

Full Answer

Common mistakes

Practice the full CPA FAR Practice Exam 4

More questions from this exam