Jason Woo Corporation began operations on January 1, 2017. During its first 3 years of operations, Woo reported net income and declared dividends as follows:                                                                                      Net income                 Dividends declared2017                     $160,000                            $ –0–2018                         500,000                         200,000                                                                           2019                          640,000                       200,000The following information relates to 2020: Income before income tax$960,000Prior period adjustment: understatement of 2018 depreciation expense (before taxes)$100,000Cumulative decrease in income from change in inventory methods (before taxes)$140,000Dividends declared (of this amount, $100,000 will be paid on Jan. 15, 2021)$400,000Effective tax rate20%Prepare a 2020 retained earnings statement for Jason Woo Corporation.Assume Jason Woo Corp. restricted retained earnings in the amount of $280,000 on December 31, 2020. After this action, what would Woo report as total retained earnings in its December 31, 2020, balance sheet?

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Asked Dec 3, 2019
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Jason Woo Corporation began operations on January 1, 2017. During its first 3 years of operations, Woo reported net income and declared dividends as follows:

                                                                                      Net income                 Dividends declared

2017                     $160,000                            $ –0–

2018                         500,000                         200,000

                                                                           2019                          640,000                       200,000

The following information relates to 2020:

 

Income before income tax

$960,000

Prior period adjustment: understatement of 2018 depreciation expense (before taxes)

$100,000

Cumulative decrease in income from change in inventory methods (before taxes)

$140,000

Dividends declared (of this amount, $100,000 will be paid on Jan. 15, 2021)

$400,000

Effective tax rate

20%

  • Prepare a 2020 retained earnings statement for Jason Woo Corporation.
  • Assume Jason Woo Corp. restricted retained earnings in the amount of $280,000 on December 31, 2020. After this action, what would Woo report as total retained earnings in its December 31, 2020, balance sheet?
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Prepare retained earnings statement for Jason Woo Cor...

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Jason Woo Corporation Retained earnings statement As of December 31, 2020 Retained earnings balance as of January 1 (160,000+500,000+640,000-200,000-200,000) Correction for depreciation error ($100,000-(100%-20%) Cumulative decrease in income from change in inventory model (S140,000x(100%-20%)) Retained earnings balance as of January 1, adjusted Add: Net income ($960,000x(100%-20%)) Less: Dividends declared 900,000 (80,000) (112,000) 708,000 768,000 (400,000) Retained earnings balance as of December 31 1,076,000

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