C Co. reported a retained earnings balance of $320,000 at December 31, 2017. In September 2018, C determined that insurance premiums of $69,000 for the three-year period beginning January 1, 2017, had been paid and fully expensed in 2017. C has a 35% income tax rate. What amount should C report as adjusted beginning retained earnings in its 2018 statement of retained earnings?

C should report $349,900 as the adjusted beginning retained earnings in its 2018 statement of retained earnings.

Explanation:

We are given the retained earnings for 2017 as $320,000, and in September of 2018 C realized that the insurance premium of $69,000 which had been paid on 1 January, 2017 was for 3 years, which means 2/3 of $69,000 was not for the year 2017 and it is now prepaid.

Amount prepaid = 2/3 x $69,000

= $46,000

But it is given that the income tax rate is 35%, so of $46,000 C will adjust or add only 65% of 46,000 in he earnings because 35% would be deducted,

= $46,000 - $46,000 x 35%

= $46,000 - $16,100

= $29,900

So we will add this amount with the $320,000,

therefore adjusted beginning retained earnings would be $349,900.