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 none X 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 none X 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 PAGE 1 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

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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

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.

none

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.

PAGE 1

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