The ledger of Zug Limited at October 31, 2014, contains the following summary data:
Cash dividends-common ........................................$ 120,000
Common shares........................................................650,000
Depreciation expense...................................................87,000
Fees earned..........................................................1,476,000
Operating expenses.....................................................929,000
Other comprehensive gain (before income tax).....................48,000
Interest expense.........................................................54,000
Retained earnings, November 1, 2013..............................575,000
Your analysis reveals the following additional information:
1. The company has a 25% income tax rate.
2. On March 19, 2014, Zug discovered an error made in the previous fiscal year. A $57,000 payment of a note payable had been recorded as interest expense.
3. On April 10, 2014, common shares costing $75,000 were reacquired for $97,500. This is the first time the company has reacquired common shares.
Instructions
(a) Prepare a journal entry to correct the prior period error.
(b) Prepare a comprehensive income statement on an all-inclusive basis.
(c) Illustrate how the changes in retained earnings will be shown in the financial statements.
Taking It Further
If an error from a previous period is found and corrected, why is it also important to restate the prior years' data shown for comparative purposes?