I have a question I got wrong from Roger's ICQ from Chapter 2-Cash Equivalents & Balance Sheet. I chose $1,630,000 as the correct question. Why does the tax expense need to be moved from prepaid tax for this question? I thought the prepaid asset can sit there until correct the month comes to expense it, but can't this carry into the next year? I am just looking for a trigger word in this question so I know to move the tax to expense and reduce the income to get the question correct…
Dr. Cr.
Cash $550,000
Accounts receivable, net $1,650,000
Prepaid taxes $300,000
Accounts payable $120,000
Common stock $500,000
Additional paid-in capital $680,000
Retained earnings $630,000
Foreign currency translation adjustment $430,000
Revenues $3,600,000
Expenses $2,600,000
$5,530,000 $5,530,000
Additional information:
During 20X3, estimated tax payments of $300,000 were charged to prepaid taxes. Trey has not yet recorded income tax expense. There were no differences between financial statement and income tax income, and Trey's tax rate is 30%.
Included in accounts receivable is $500,000 due from a customer. Special terms granted to this customer require payment in equal semi-annual installments of $125,000 every April 1 and October 1.
In Trey's December 31, 20X3, balance sheet, what amount should be reported as total retained earnings?
YOUR ANSWER WAS INCORRECT:
$1,029,000
$1,200,000
$1,330,000
$1,630,000
INCORRECT ANSWER EXPLANATION:
Incorrect. The foreign currency translation adjustment would be an adjustment to stockholders' equity, but would not affect retained earnings. Net income consists of revenues of $3,600,000 and expenses of $2,600,000 giving a pretax amount of $1,000,000. At 30%, taxes will be $300,000 reducing net income to $700,000. When added to beginning retained earnings of $630,000, the ending balance is $1,330,000.
.