Scobie Company began 2016 with a retained earnings balance of $142,400. During an examination of its accounting records on December 31, 2016, Scobie found it had made the following material errors, for both financial reporting and income tax reporting, during 2015.

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.

Scobies net income after taxes during 2016 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 2016.

Required:

1.	Prepare whatever journal entries in 2016 are necessary to correct Scobies books for its previous errors. Make your corrections directly to the Retained Earnings account.
2.	Prepare the statement of retained earnings for 2016.

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Chart of Accounts

CHART OF ACCOUNTS

Scobie Company

General Ledger

	ASSETS
111	Cash
121	Accounts Receivable
141	Inventory
152	Prepaid Insurance
181	Equipment
189	Accumulated Depreciation

	LIABILITIES
211	Accounts Payable
231	Salaries Payable
250	Unearned Revenue
256	Interest Payable
261	Income Taxes Payable

	EQUITY
311	Common Stock
331	Retained Earnings

	REVENUE
411	Sales Revenue

	EXPENSES
500	Cost of Goods Sold
511	Insurance Expense
512	Utilities Expense
521	Salaries Expense
532	Bad Debt Expense
540	Interest Expense
541	Depreciation Expense
559	Miscellaneous Expenses
910	Income Tax Expense

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General Journal

Prepare whatever journal entries are necessary to correct Scobies books for its previous errors. Make your corrections directly to the Retained Earnings account on December 31. Additional Instructions

If given the option, record two entries rather than one compound entry. For example, correct accumulated depreciation and then correct the related income taxes payable.

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GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6

SCOBIE COMPANY

Statement of Retained Earnings

For Year Ended December 31, 2016

1	Retained Earnings, as Previously Reported, January 1, 2016
2	Prior Period Adjustments:
3	Correction of Overstatement in 2015 Depreciation
4	Correction of Understatement in 2015 Interest
5	Adjusted Retained Earnings, January 1, 2016
6	Add: Net income
7
8	Less: Cash Dividends
9	Retained Earnings, December 31, 2016