Question
BNSF had retained earnings balance of $430,000 on January 1, 2021. During the year, it reported net income of $60,00 and paid out cash dividends
BNSF had retained earnings balance of $430,000 on January 1, 2021. During the year, it reported net income of $60,00 and paid out cash dividends of $8,900. In April, BSNFs auditor discovered that the company overstated its sale revenue of 2018 with a net of tax amount of $7,500. How the correction of this error would affect BNSFs 2021 financial statements?
A. January 1;s retained earnings would be adjusted to be $422,500
B. December 31,s retained earnings would be $481,100
C. Net income of 2021 would decrease by $7,500 to be $52,500
D. No effect because revenue overstates in 2018 instead of 2021.
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