On January 1, 2017, Harnden Inc. posted a repair expense bill of $100,000 to the equipment account instead of the repair expense account. You are the new accountant for this business and you are in the process of preparing the 2018 financial statements when you notice that the $100,000 expenditure was recorded incorrectly in 2017. This error is discovered prior to the recording of the 2018 depreciation expense. The expenditure, posted in the equipment account, was also set up to be depreciated on a straight line basis. The assumed salvage value was $0 and the expected useful life was 10 years. The tax rate is 30%. The unadjusted balance in retained earnings at January 1, 2018 was $725,000. The company has a December 31 year end and reported net income of $500,000 and paid dividends of $45,000 during 2018.

Required: 

a) Calculate the earnings correction that Harnden must show in the 2018 financial statements.

b) Prepare the 2018 entry to record the correction of the 2017 error.

General Journal
Date	Account Titles and Explanation	Debit	Credit

c) Present the retained earnings reconciliation that would appear on Harnden’s statement of changes in equity.