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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Retained Earnings Statement

  1. Listed below are events that affect stockholders’ equity.
  2. Reported net income of $85,000.
  3. Paid a cash dividend of $10,000.
  4. Reported sales revenue of $120,000.
  5. Issued common stock of $50,000
  6. Reported a net loss of $20,000.
  7. Reported of S35,000.

Required:

For each of the events, indicate whether it increases retained earnings (I), decreases retained earnings (D), or has no effect on retained earnings (NE).

To determine

Concept Introduction:

Financial statements: Financial statements are prepared to summaries the account at the end of the period. The statements prepared are Income statement, Balance sheet, Statement of owner’s equity and Cash flows statements.

Statement of Retained earnings:

Items reported on a retained earnings statement are explained as follows:

  • Beginning Balance of Retained earnings is the ending balance of the retained earnings of the previous year.
  • Net Income or Net loss is the amount of net income earned or net loss incurred for the year.
  • Dividends Paid are taken for the year.
  • Ending Balance of Retained earnings is calculated as follows:

Ending Balance of Retained earnings = Beginning Balance of Retained earnings + Net Income − Net income − Dividends Paid

To Indicate:

The effect of each transaction on retained earnings.

Explanation

The effect of each transaction on retained earnings is explained as follows:

    EventEffect on Retained earnings
    a.INet Income increases the retained earnings
    b.DDividends decreased the retained earnings
    c...

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