Question: Below is the Retained Earnings account for the year 2017 for Acadian Corp.

Retained earnings, January 1, 2017 \(257,600

Add:

Gain on sale of investments (net of tax) \)41,200

Net income 84,500

Refund on litigation with government, related to

the year 2014 (net of tax) 21,600

Recognition of income earned in 2016, but omitted

from income statement in that year (net of tax) 25,400 172,700

430,300

Deduct:

Loss on discontinued operations (net of tax) 35,000

Write-off of goodwill (net of tax) 60,000

Cumulative effect on income of prior years in changing

from LIFO to FIFO inventory valuation in 2017 (net of tax) 23,200

Cash dividends declared 32,000 150,200

Retained earnings, December 31, 2017 $280,100

Instructions

1. Prepare a corrected retained earnings statement. Acadian Corp. normally sells investments of the type mentioned above. FIFO inventory was used in 2017 to compute net income.

Step by step solution

01

Meaning of Cash Dividend

The term cash dividend refers to the amount of revenue shareholders receive from companies in which they have invested their money. It provides them with returns in the form of cash.

02

Computation of net income

Particulars	Amounts ($)
Reported net income	84,500
Add: Gain on sale of investment	41,200
Add: Refund on litigation with govt. (net of tax)	21,600
Less: Loss on discontinued operation (net of tax)	(35,000)
Less: Goodwill written off	60,000
Net income	$52,300

03

Preparation of retained earnings statement

Acadian Corp.
Retained Earnings Statement
For the year ended December 31, 2017
Particulars	Amounts ($)
Retained earnings January 1, 2017	257,600
Add: Correction of error (Income earned, net of tax)	25,400
Less: Adjustment for change in inventory valuation	(23,200)
Retained earnings on January 1, 2017	259,800
Add: Net income	52,300
Less: Cash dividend	(32,000)
Retained earnings, December 31, 2017	$280,100

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