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Tall Industries - Correcting Entries and Retained Earnings

The Controller at Tall Industries was preparing the financial statements for the year ended December 31, 2006, when he discovered an error. Apparently, the income tax expense for 2005 was understated by $40,000. He was not sure how to handle this situation and has come to you for help. He has also gathered the following information:

Retained earnings at December 31, 2005: $525,000

Cash dividend declared during 2006: $50,000

Stock dividends declared during 2006: $150,000

Net income for the year ended December 31, 2006: $200,000

a. Make the appropriate entry to correct the error.
b. Prepare a statement of retained earnings for Tall Industries for the year ended December 31, 2006.

Solution Preview

a. Make the appropriate entry to correct the error.

You have to debit the retained earnings account and credit the income summary account, which is the ...

Solution Summary

This solution is comprised of correcting entry and statement of retained earnings for Tall Industries.

$2.19