Assume an error was discovered: land costing $80,000 (net of tax) was charged to Repsir Expense in 2007. What would the adjustment entry be on the retained earnings statement for 2010?
To determine the adjustment entry on the retained earnings statement for 2010 relating to the error discovered in 2007, we need to know the impact of the error on the financial statements of 2007 and subsequent years. This will require analyzing the error and its effect on the financial statements over time.
1. Identify the error: In this case, the error involves charging land costing $80,000 (net of tax) to the Repair Expense account in 2007. This implies that the land was mistakenly recorded as an expense when it should have been capitalized as an asset.
2. Determine the impact on 2007 financial statements: To rectify the error, an adjusting entry should be made in 2007 to correct the misclassification. Assuming the land is correctly classified as an asset, the entry would involve debiting the Repair Expense account and crediting the Land asset account. The specific entries will depend on the accounts involved and the tax implications.
3. Determine the impact on subsequent financial statements: Since the error occurred in 2007, subsequent financial statements (including the retained earnings statement for 2010) may have been affected. To determine the adjustment entry for the retained earnings statement, we need to consider any subsequent transactions or corrections made in the intervening years.
4. Analyze the impact on the retained earnings statement: The retained earnings statement shows the changes in retained earnings over time, including net income, dividends, and other adjustments affecting the accumulated earnings of a company. If the error has impacted subsequent years' financial statements, it may have influenced the reported net income, which in turn affects retained earnings.
Based on the information provided, it is not possible to determine the specific adjustment entry for the retained earnings statement in 2010 without additional details about the intervening years and any subsequent corrections made. Further analysis of the financial statements from 2007 to 2010 is required to ascertain the impact of the error on the retained earnings statement and determine the necessary adjustment entries.