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Chapter 4: Question 10BE (page 182)

Using the information from BE4-9, prepare a retained earnings statement for the year ended December 31, 2017. Assume an error was discovered: land costing $80,000 (net of tax) was charged to maintenance and repairs expense in 2014.

Short Answer

Expert verified

The Retained Earnings Statement shows a balance of $2,080,000 as of December 31, 2017.

Step by step solution

01

Meaning of Retained Earnings Statement

Retained earnings statement refers to a financial statement that explains the change in the amount of retained earnings for a specific period.

02

Preparation of retained earnings statement for the year ended December 31, 2017.

Retained Earnings Statement
For the Year Ended December 31, 2017

Retained Earnings on January 1, 2017

$675,000

Correction for overstatement of expenses

$80,000

Retained Earnings on January 1 after adjustment

$755,000

Add: Net Income

$1,400,000

Less: Cash Dividends

($75,000)

Retained Earnings balance on December 31,2017

$2,080,000

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Most popular questions from this chapter

Linus Paper Company decided to close two small pulp mills in Conway, New Hampshire, and Corvallis, Oregon. These two closings do not represent a major shift in strategy for the company. Would these closings be reported in a separate section entitled 鈥淒iscontinued operations after income from continuing operations鈥�? Discuss.

(Multiple-Step Statement with Retained Earnings Statement) Presented below is information related to Ivan Calderon Corp. for the year 2017.

Net sales $1,300,000 Write-off of inventory due to obsolescence 80,000

Cost of goods sold 780,000 Depreciation expense omitted by accident in 2016 55,000

Selling expenses 65,000 Casualty loss 50,000

Administrative expenses 48,000 Cash dividends declared 45,000

Dividend revenue 20,000 Retained earnings at December 31, 2016 980,000

Interest Revenue 7,000

Effective tax rate of 34% on all items

Instructions

  1. Prepare a multiple-step income statement for 2017. Assume that 60,000 shares of common stock are outstanding for the entire year.
  2. Prepare a separate retained earnings statement for 2017.

What is meant by 鈥渢ax allocation within a period鈥�? What is the justification for such practice?

C.Reither Co. reports the following information for 2017: sales revenue \(700,000, cost of goods sold \)500,000, operating expenses \(80,000, and an unrealized holding loss on available-for-sale securities for 2017 of \)60,000. It declared and paid a cash dividend of \(10,000 in 2017. C Reither Co. has January 1, 2017, balances in common stock \)350,000; accumulated other comprehensive income \(80,000; and retained earnings \)90,000. It issued no stock during 2017.

Instructions

Prepare a statement of stockholders鈥� equity.

What is earnings management?
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