1. Flam, Inc. reported a retained earnings balance of $150,000 at December 31, year 1. In June year 2, Flam discovered that merchant disecosting $40,000 had not been included in inventory in its year 1 financial statements. Flam has a 30% tax rate. What amount should Flam report as adjusted beginning retained earnings in its statement of retained earnings at December 31, year 2? Question options: $178,000 $150,000 $122,000 $190,000
2. During year 2, Flam Corporation discovered that ending inventory reported in its year 1 financial statements was understated by $10,000. How should Flam account for this understatement? Question options: Adjust the beginning inventory balance in year 2 by $10,000. Make no entry because the error will self-correct. Restate the financial statements with corrected balances for all periods presented. Adjust the ending balance in the year 2 retained earnings account.
3. On January 1, year 1, Flop Co. purchased a machine for $528,000 and depreciated it by the straight-line method using an estimated useful life of eight years with no salvage value. On January 1, year 4, Flop determined that the machine had a useful life of six years from the date of acquisition and will have a salvage value of $48,000. An accounting change was made in year 4 to reflect these additional data. The accumulated depreciation for this machine should have a balance at December 31, year 4, of Question options: $352,000 $320,000 $308,000 $292,000