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Chapter 4: Question 9BE (page 182)

Portman Corporation has retained earnings of \(675,000 at January 1, 2017. Net income during 2017 was \)1,400,000, and cash dividends declared and paid during 2017 totaled $75,000. Prepare a retained earnings statement for the year ended December 31, 2017.

Short Answer

Expert verified

The retained earnings statement shows a balance on December 31, 2017, for $2,000,000.

Step by step solution

01

Meaning of retained earnings

Income earned after paying dividends to common shareholders is the accumulated profit the company uses to distribute to shareholders or to retain in the business for further investment.

02

Preparation of Retained Earnings Statement

Portman Corporation
Retained Earnings Statement
For the Year Ended December 31, 2017

Retained Earnings on Jan. 1, 2017

$675,000

Add: Net Income

$1,400,000

Less: Cash Dividends

($75,000)

Retained Earnings on Dec. 31, 2017

$2,000,000

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Most popular questions from this chapter

Finley Corporation had income from continuing operations of \(10,600,000 in 2017. During 2017, it disposed of its restaurant division at an after-tax loss of \)189,000. Prior to disposal, the division operated at a loss of $315,000 (net of tax) in 2017 (assume that the disposal of the restaurant division meets the criteria for recognition as a discontinued operation). Finley had 10,000,000 shares of common stock outstanding during 2017. Prepare a partial income statement for Finley beginning with income from continuing operations.

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.

What kinds of questions about future cash flows do investors and creditors attempt to answer with information in the income statement?

How can information based on past transactions be used to predict future cash flows?

What is the basis for distinguishing between operating and non-operating items?
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