E17-16 Prior Period Adjustments Miles Company began 2007 with a retained earnings balance of $142,400. During an examination of its accounting records on December 31, 2007, the company found it had made the following material errors, for both financial reporting and income tax reporting, during 2006. 1. Depreciation expense of $15,000 inadvertently had been recorded twice for the same machine. 2. No accrual had been made at year-end for interest; therefore, interest expense had been understated by $4,000. The Miles Company’s net income during 2007 was $60,000. The company has been subject to a 30% income tax rate for the past several years. It declared and paid dividends of $13,000 during 2007. Required 1. Prepare whatever journal entries in 2007 are necessary to correct the Miles Company books for its previous errors. Make your corrections directly to the retained earnings account. 2. Prepare the statement of retained earnings for 2007.
E17-16 Prior Period Adjustments Miles Company began 2007 with a retained earnings balance of $142,400. During an examination of its accounting records on December 31, 2007, the company found it had made the following material errors, for both financial reporting and income tax reporting, during 2006.
1. Depreciation expense of $15,000 inadvertently had been recorded twice for the same machine.
2. No accrual had been made at year-end for interest; therefore, interest expense had been understated by $4,000.
The Miles Company’s net income during 2007 was $60,000. The company has been subject to a 30% income tax rate for the past several years. It declared and paid dividends of $13,000 during 2007.
Required
1. Prepare whatever journal entries in 2007 are necessary to correct the Miles Company books for its previous errors. Make your corrections directly to the retained earnings account.
2. Prepare the statement of retained earnings for 2007.
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