At the beginning of Year 1, Delta Co. discovered it had erroneously expensed a $100,000 equipment purchase in Year 0. The equipment should have been depreciated over 5 years (straight-line, no salvage). The tax rate is 30%. <br/><br/>What is the adjustment to the beginning Retained Earnings of Year 1 (net of tax)?

Year 0 Error Analysis:<br/>Actual Expense: $100,000 (Full cost)<br/>Correct Expense: $20,000 (Depreciation: 100k/5)<br/>Difference: Expenses were Overstated by $80,000.<br/>Therefore, Year 0 Net Income was Understated by $80,000 (pre-tax).<br/><br/>Correction:<br/>Increase Retained Earnings by the understated amount, net of tax.<br/>Adjustment = $80,000 * (1 - 0.30) = $56,000 Increase.