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Chapter 13: 36E (page 717)

Preparing a statement of retained earnings

Kelly May Bakery, Inc. reported a prior-period adjustment in 2018. An accounting error caused net income of prior years to be overstated by \(1,000. Retained Earnings at December 31, 2017, as previously reported, was \)48,000. Net income for 2018 was \(74,000, and dividends declared were \)28,000. Prepare the company’s statement of retained earnings for the year ended December 31, 2018.

Short Answer

Expert verified

Retained earnings on December 31,2018 is $95,000

Step by step solution

01

Basic Introduction

The statement of retained earnings is a financial statement that shows the increase or decrease in the amount of retained earnings over particular period.

02

Statement of Retained Earnings

Statement of Retained Earnings

December 31, 2018

Retained earnings on January 1,2018

$48,000

Prior period adjustment

$1,000

Retained earnings as adjusted

$49,000

Net Income

$74,000

$123,000

Dividend declared

($28,000)

Retained earnings on December 31,2018

$95,000

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Most popular questions from this chapter

Computing dividends on preferred and common stock and journalizing

Northern Communications has the following stockholders’ equity on December 31,

2018:

Preferred Stock—5%, \(11 Par Value; 150,000 shares authorized, 20,000 shares issued and outstanding

Paid-In Capital:

\) 220,000

760,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 680,000

Total Paid-In Capital 1,660,000

Retained Earnings 200,000

Total Stockholders’ Equity \( 1,860,000

Common Stock—\)2 Par Value; 575,000 shares

authorized, 380,000 shares issued and outstanding

Requirements

2. Record the journal entries for 2018, assuming that Northern Communications declared the dividend on December 1 for stockholders of record on December 10. Northern Communications paid the dividend on December 20.

Question: Organizing a corporation and issuing stock

Jimmy and Randy are opening a comic store. There are no competing comic stores in the area. They must decide how to organize the business. They anticipate profits of $550,000 the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow. They feel the corporate form of operation will be best for the long term. They seek your advice.

Requirements

1. What is the main advantage they gain by selecting a corporate form of business now?

Analyzing the effect of prior-period adjustments

Taylor Corporation discovered in 2019 that it had incorrectly recorded in 2018 a cash payment of \(70,000 for utilities expense. The correct amount of the utilities expense was \)35,000.

Requirements

2. How should this error be reported in the 2019 financial statements?

Vollmer, Inc. had reported the following balances:

December 31, 2019 December 31, 2018

Net Income \( 80,000 \) 60,000

Preferred Dividends 2,000 5,000

Total Stockholders’ Equity 340,000 310,000

Stockholders’ Equity attributable to Preferred Stock 20,000 20,000

Number of Common Shares Outstanding 10,000 14,000

11. Compute Vollmer’s earnings per share for 2019.

12. Compute Vollmer’s price/earnings ratio for 2019, assuming the market price is $40 per share.

13. Compute Vollmer’s rate of return on common stockholders’ equity for 2019.

A Identifying sources of equity, stock issuance, and dividends

Voyage Comfort Specialists, Inc. reported the following stockholders’ equity on its balance sheet at June 30, 2018:

Preferred Stock—7%, ? Par Value; 625,000 shares

authorized, 280,000 shares issued and outstanding

Paid-In Capital:

\( 1,400,000

1,340,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 2,900,000

Total Paid-In Capital 5,640,000

Retained Earnings 12,000,000

Total Stockholders’ Equity \) 17,640,000

Common Stock—$1 Par Value; 3,000,000 shares

authorized, 1,340,000 shares issued and outstanding

Requirements

3. Make two summary journal entries to record issuance of all the Voyage Comfort Specialists’ stock for cash. Explanations are not required.
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