Reference no: EM132794633
Charm Company began operations on January 1, 2017. During the first three years of operations, Charm Company reported net income of P1,500,000 for 2017, P2,500,000 for 2018, and P3,000,000 for 2019.The entity also declared and paid dividends of P1,000,000 for 2018 and P1,000,000 for 2019.
The entity reported the following data for 2020:
Income before income tax 5,000,000;
Prior period adjustment - understatement of 2018 depreciation before tax 500,000;
Cumulative decrease in income from change in inventory method before tax 1,000,000;
Dividend declared (of this amount, P500,000 will be paid on January 15, 2021) 2,000,000; and
Income tax rate 30%.
Question 1: What amount should be reported as retained earnings on December 31, 2020?
Option 1: 6,150,000
Option 2: 5000,000
Option 3: 5,450,000
Option 4: 6,500,000
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