Stellar Corporation began operations on January 1, 2014. During its first 3 years of operations, Stellar reported net income and declared dividends as follows. Net incomeDividends declared2014 $49,500 $ –0–2015 128,600 59,6002016 161,000 58,800The following information relates to 2017.Income before income tax $231,000Prior period adjustment: understatement of 2015 depreciation expense (before taxes) $32,000Cumulative decrease in income from change in inventory methods (before taxes) $44,800Dividends declared (of this amount, $32,000 will be paid on January 15, 2018) $118,400Effective tax rate 40%Prepare a 2017 retained earnings statement for Stellar Corporation. (List items that increase adjusted retained earnings first.)

$194,820  

Explanation:

Retained earnings at the end of 2017 is computed thus:

2014 net income                                                        $49,500

2014 dividends                                                           ($0)

2014 retained earnings                                             $49,500

2015 net income                                                       $128,600

2015 dividends                                                         ($59,600)    

2015 retained earnings                                            $118,500  

2016 net income                                                       $161,000

2016 dividends                                                         ($58,800)

2016 retained earnings                                           $220,700  

understatement of depreciation expense

after tax impact $32,000-(40%*$32,000)              ($19,200)

After tax impact of decrease in net income due

to inventory  method $44,800-($44,800*40%)    ($26,880)

Adjusted retained earnings for 2016                    $174,620  

net income for 2017 $231,000-($231,000*40%)   $138,600

dividends declared for 2017                                  ($118,400)              

Retained earnings  for 2017 year end                    $194,820  

Retained earnings in the adjustment in each is the retained earnings brought forward plus the net income for the current year minus dividends declared for the year            

there was no passage listed but using the process of elimination i'd say it was d. the high economy would do the opposite. i don't see how low prices would affect it. high unemployment is possible but i feel d is the better answer.