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Conn Co. reported a retained earnings balance of $400,000 at December 31, 1991. In August 1992, Conn determined that insurance premiums of $60,000 for the three-year period beginning January 1, 1991, had been paid and fully expensed in 1991. Conn has a 30% income tax rate. What amount should Conn report as adjusted beginning retained earnings in its 1992 statement of retained earnings?
Suggested Answer: B
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Choice 'b' is correct. $428,000 net of tax.
28 comments · newest first
SH
Shaunna
10 months ago
Wait, how do we know they actually over-expensed?
YO
Yong
10 months ago
I think it should be $442,000 after adjustments.
ED
Edna
10 months ago
Don't forget the tax effect on that $60k!
SU
Sue
10 months ago
The original retained earnings were $400,000.
RO
Rocco
10 months ago
Totally with you on that $442k figure!
KE
Kerry
11 months ago
I feel like the answer should be around $440,000 after adjustments, but I’m not completely confident in my calculations.
TA
Talia
11 months ago
This reminds me of a practice question where we had to adjust for expenses. I think the tax effect is crucial, but I’m a bit confused about the final number.
BA
Barb
11 months ago
I think we need to add back the $60,000 and then adjust for taxes, but I can't recall the exact calculation.
WA
Wade
11 months ago
I remember something about adjusting retained earnings for prior period errors, but I'm not sure how the tax impact works here.
LE
Leatha
11 months ago
The key here is to remember that the insurance premiums were expensed in 1991, but they were for a 3-year period. So we need to adjust the 1991 balance and then factor in the tax impact.
JO
Johana
12 months ago
I'm a bit confused by the wording of the question. Can someone clarify what exactly we need to do to get the adjusted beginning retained earnings for 1992?
SY
Sylvia
12 months ago
I'm feeling pretty confident about this one. The key is to adjust the retained earnings balance for the insurance premium error and then calculate the tax impact.
BE
Bette
12 months ago
Okay, let's break this down step-by-step. We have the original retained earnings balance, an adjustment for insurance premiums, and a tax rate. I think I can work through this systematically.
RU
Ruthann
1 year ago
This question seems straightforward, but I want to make sure I understand the details correctly before attempting to solve it.
DE
Delpha
1 year ago
Okay, let me get this straight - they overpaid their premiums, and now they need to adjust their retained earnings? What a headache. I'll go with B, $428,000. Sounds about right to me.
MA
Maile
1 year ago
Ha, leave it to Conn Co. to mess up their insurance payments. I'm going with C, $440,000. Feels like the safest bet here.
RI
Ricki
1 year ago
Hmm, this is tricky. Gotta account for that tax rate too. I'm thinking D, $442,000. Seems like the right way to calculate the adjusted retained earnings.
JE
Jesus
1 year ago
I see your point about the tax rate. But what about the income adjustment?
AS
Asuncion
1 year ago
Exactly! If we calculate the tax effect, D makes sense.
DY
Dyan
1 year ago
I still have my doubts. Maybe it's C instead? It's a close call!
BA
Barb
1 year ago
I think we need to do some math here. It's not just about the premium.
CA
Carolann
1 year ago
I agree with Giuseppe, C) $440,000 makes sense considering the tax rate.
GI
Giuseppe
1 year ago
I'm leaning towards C) $440,000 because of the tax rate adjustment.
FR
Franchesca
1 year ago
Wait, so they overpaid their insurance premiums? That's a weird accounting mistake. I'd go with option B, $428,000. Seems like the most straightforward adjustment.
GW
Gwenn
1 year ago
Yeah, that seems like the logical choice. It's important to correct those accounting errors.
HA
Hailey
1 year ago
I think option B, $428,000, makes sense. They need to adjust for the overpaid insurance premiums.
GL
Glory
1 year ago
I disagree, I believe the correct answer is B) $428,000.
NA
Nana
1 year ago
I think the answer is A) $420,000.