Gibson Products had beginning retained earnings of $1,000,000. During the year Gibson paid $50,000 of cash dividends to preferred shareholders and $25,000 of cash dividends to common shareholders. Net income for the year was $385,000.

Required:

1. Reproduce the retained earnings T-account for the year starting with the beginning balance.

2. Determine what Gibson's ending retained earnings is assuming that during the year they discover that net income was overstated by $15,000 in prior years due to an error. The error was corrected and the current year's net income is correct.