A CPA was engaged by Blackbird Company in 2015 to examine its books and records and to

Question:

A CPA was engaged by Blackbird Company in 2015 to examine its books and records and to make whatever corrections are necessary. An examination of the accounts discloses the following.

(a) Dividends had been declared on December 15 in 2012 and 2013 but had not been entered in the books until paid.

(b) Improvements in buildings and equipment of $10,800 had been debited to expense at the end of April 2011. Improvements are estimated to have a 12-year life. The company uses the straight-line method in recording depreciation and computes depreciation to the nearest month.

(c) The physical inventory of merchandise had been understated by $3,200 at the end of 2012 and by $4,750 at the end of 2013.

(d) The merchandise inventories at the end of 2013 and 2014 did not include merchandise that was then in transit and to which the company had title. These shipments of $2,100 and $2,900 were recorded as purchases in January of 2014 and 2015, respectively.

(e) The company had failed to record sales commissions payable of $3,600 and $1,100 at the end of 2013 and 2014, respectively.

(f) The company had failed to recognize supplies on hand of $850 and $1,720 at the end of 2013 and 2014, respectively.

The retained earnings account appeared as shown below on the date the CPA began the examination.

A CPA was engaged by Blackbird Company in 2015 to

Instructions:
1. Journalize the necessary corrections.
2. Prepare a statement of retained earnings covering the three-year period beginning January 1, 2012. The statement should report the corrected Retained Earnings balance on January 1, 2012, the annual changes in the account, and the corrected Retained Earnings balances as of December 31, 2012, 2013, and 2014.
3. Set up an account for retained earnings before correction, and post correcting data to this account for (1). Balance the account, showing the corrected retained earnings as of January 1, 2015.