The ledger of Zug Limited at October 31, 2021, contains the following summary data:

Your analysis reveals the following additional information:

1. The company has a 25% income tax rate.

2. On March 19, 2021, 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, 2021, 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 the journal entry to record the reacquisition of common shares.

c. Calculate profit for the year ended October 31, 2021.

d. Prepare the statement of retained earnings for the company for the year ended October 31, 2021.

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?

Transcribed Image Text:

Cash dividends-common Common shares Depreciation expense Service revenue $ 120,000 Operating expenses Interest expense Retained earnings, November 1, 2020 $929,000 575,000 87,000 1,476,000