In 2018, Thom Inc. discovered an error in its 2015 financial statements. The firm recorded $8,500,000 of

Question:

In 2018, Thom Inc. discovered an error in its 2015 financial statements. The firm recorded $8,500,000 of depreciation expense on its equipment instead of recording $9,500,000. Thom has a constant tax rate of 40% and reports 3 years of comparative income statements and 2 years of comparative balance sheets with its financial reports. Assume that Thom uses the same depreciation method for tax and financial reporting. Retained earnings and accumulated depreciation as of December 31, 2017, were $12,075,000 and $4,600,000, respectively.

Required

a. What is the necessary journal entry to record the prior-period adjustment?

b. How would Thom report its accumulated depreciation and retained earnings balances in the restated balance sheet dated December 31, 2017?

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...

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