Divine Company began operations on January 1, 2017.

During the first three years of operations, the

entity reported the following net income and dividends declared:

Net Income Dividend

2017 800,000 0
2018 2,500,000 1,000,000
2019 3,000,000 1,000,000

The entity provided the following information for 2020:

Income before income tax 4,800,000

Prior period error – understatement of 2018 depreciation before tax 400,000

Cumulative decrease in income from

700,000
change in inventory method before tax

Dividend declared (of this amount,

2,000,000
P500,000 will be paid on January 15. 2021)

Income tax rate 30%

What amount should be reported as retained earnings on December 31, 2020? – 4,890,000

Net effect
2017 800,000
2018 (2500000 – 1000000) 1,500,000
2019 (3000000 – 1000000) 2,000,000 4,300,000
(4.8M*.30)- 4.8M= 3,360,000
Income before tax
Understatement of (400000* .70) (280,000)
depreciation
Change in Inventory method (700000* .70) (490,000)
Dividend declared (2,000,000)
RE, adjusted 4,890,000