Scobie Company began 2016 with a retained earnings balance of $142,400. During an examination of its accounting records on December 31, 2016, Scobie found it had made the following material errors, for both financial reporting and income tax reporting, during 2015.

1.	Depreciation expense of $15,000 inadvertently had been recorded twice for the same machine.
2.	No accrual had been made at year-end for interest; therefore, interest expense had been understated by $4,000.

Scobies net income after taxes during 2016 was $60,000. The company has been subject to a 30% income tax rate for the past several years. It declared and paid dividends of $13,000 during 2016.

Required:

1.	Prepare whatever journal entries in 2016 are necessary to correct Scobies books for its previous errors. Make your corrections directly to the Retained Earnings account.
2.	Prepare the statement of retained earnings for 2016.

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Chart of Accounts

CHART OF ACCOUNTS
Scobie Company
General Ledger
ASSETS 111 Cash 121 Accounts Receivable 141 Inventory 152 Prepaid Insurance 181 Equipment 189 Accumulated Depreciation LIABILITIES 211 Accounts Payable 231 Salaries Payable 250 Unearned Revenue 256 Interest Payable 261 Income Taxes Payable EQUITY 311 Common Stock 331 Retained Earnings	REVENUE 411 Sales Revenue EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 521 Salaries Expense 532 Bad Debt Expense 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 910 Income Tax Expense

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General Journal

Prepare whatever journal entries are necessary to correct Scobies books for its previous errors. Make your corrections directly to the Retained Earnings account on December 31. Additional Instructions

If given the option, record two entries rather than one compound entry. For example, correct accumulated depreciation and then correct the related income taxes payable.

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GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
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2
3
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5
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SCOBIE COMPANY

Statement of Retained Earnings

For Year Ended December 31, 2016

1	Retained Earnings, as Previously Reported, January 1, 2016
2	Prior Period Adjustments:
3	Correction of Overstatement in 2015 Depreciation
4	Correction of Understatement in 2015 Interest
5	Adjusted Retained Earnings, January 1, 2016
6	Add: Net income
7
8	Less: Cash Dividends
9	Retained Earnings, December 31, 2016