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Stellar Corporation began operations on January 1, 2014. During its first 3 years of operations, Stellar reported net income and declared dividends as follows.Net incomeDividends declared2014 $49,500 $ –0– 2015 128,600 59,600 2016 161,000 58,800 The following information relates to 2017.Income before income tax $231,000 Prior period adjustment: understatement of 2015 depreciation expense (before taxes) $32,000 Cumulative decrease in income from change in inventory methods (before taxes) $44,800 Dividends declared (of this amount, $32,000 will be paid on January 15, 2018) $118,400 Effective tax rate 40 %Prepare a 2017 retained earnings statement for Stellar Corporation. (List items that increase adjusted retained earnings first.)

Answer :

Answer:

$194,820  

Explanation:

Retained earnings at the end of 2017 is computed thus:

2014 net income                                                        $49,500

2014 dividends                                                           ($0)

2014 retained earnings                                             $49,500

2015 net income                                                       $128,600

2015 dividends                                                         ($59,600)    

2015 retained earnings                                            $118,500  

2016 net income                                                       $161,000

2016 dividends                                                         ($58,800)

2016 retained earnings                                           $220,700  

understatement of depreciation expense

after tax impact $32,000-(40%*$32,000)              ($19,200)

After tax impact of decrease in net income due

to inventory  method $44,800-($44,800*40%)    ($26,880)

Adjusted retained earnings for 2016                    $174,620  

net income for 2017 $231,000-($231,000*40%)   $138,600

dividends declared for 2017                                  ($118,400)              

Retained earnings  for 2017 year end                    $194,820  

Retained earnings in the adjustment in each is the retained earnings brought forward plus the net income for the current year minus dividends declared for the year            

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