Pack Company's net incomes for the past three years are presented below:

2011 2010 2009

$480,000 $450,000 $360,000

During the 2011 year-end audit, the following items come to your attention:

• Pack bought a truck on January 1, 2008 for $196,000 with a $16,000 estimated salvage value and a six-year life. The company debited an expense account and credited cash on the purchase date for the entire cost of the asset. (Straight-line method)

• During 2011, Pack changed from the straight-line method of depreciating its cement plant to the double-declining balance method. The following computations present depreciation on both bases:

2011 2010 2009

Straight-line 36,000 36,000 36,000

Double-declining 46,080 57,600 72,000

The net income for 2009 was computed using the double-declining balance method, on the January 1, 2011 book value, over the useful life remaining at that time. The depreciation recorded in 2011 was $72,000.

• Pack, in reviewing its provision for uncollectibles during 2011, has determined that 1% is the appropriate amount of bad debt expense to be charged to operations. The company had used ½ of 1% as its rate in 2010 and 2011 when the expense had been $18,000 and $12,000, respectively. The company recorded bad debt expense under the new rate for 2011. The company would have recorded $6,000 less of bad debt expense on December 31, 2011 under the old rate.

Assume that the beginning retained earnings balance (unadjusted) for 2009 was $1,260,000. At what adjusted amount should this beginning retained earnings balance for 2009 be stated, assuming that comparative financial statements were prepared?

Retained earnings (unadjusted) $__,_____,_____

Correction of 2008 error , ,

Retained earnings (adjusted) $ , ,

Answer rating: 100% (QA)

Explanation 1 The debit of 196000 to expense account would have caused a reduction i... View the full answer