The ledger of Weather Vane Limited at September 30, 2014, contains the following summary data:

Cash dividends-common.................................$ 150,000

Common shares................................................750,000

Depreciation expense...........................................74,000

Fees earned...................................................1,647,000

Operating expenses............................................971,000

Other comprehensive loss (before income tax).............38,000

Other revenue...................................................65,000

Retained earnings, October 1, 2013........................845,000

Your analysis reveals the following additional information:

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

2. On July 9, 2014, Weather Vane discovered an error made in the previous fiscal year. A $61,500 payment of a note payable had been recorded as interest expense.

3. On August 18, 2014, common shares costing $57,500 were reacquired for $90,000. 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 year's data shown for comparative purposes?