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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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Exercise 1-4? Retained Earnings Statement

At the end of 2018, Sherwood Company had retained earnings of $18,240. During 2019, Sherwood had revenues of $837,400 and expenses of $792,100, and paid cash dividends in the amount of $38,650.

Required:

1. Determine the amount of Sherwood’s retained earnings at December 31, 2019.

2. CONCEPTUAL CONNECTION Comment on Sherwood’s dividend policy.

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

Requirement-1

To Calculate:

The amount of retained earnings as on Dec. 31, 2019.

Explanation

The amount of retained earnings as on Dec. 31, 2019 is calculated as follows:

Beginning Balance of Retained earnings $18,240

Add: Net Inco...

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

Requirement-2

To Discuss:

The dividend policy of the company,

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