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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Retained Earnings Statement Rolt Company began 2019 with a $120,000 balance in retained earnings. During the year, the following events occurred:

  1. 1. The company earned net income of $80,000.
  2. 2. A material error in net income from a previous period was corrected. This error correction increased retained earnings by $9,800 after related income taxes of $4,200.
  3. 3. Cash dividends totaling $13,000 and stock dividends totaling $17,000 were declared.
  4. 4. One thousand shares of callable preferred stock that originally had been issued at $110 per share were recalled and retired at the beginning of 2016 for the call price of $120 per share.
  5. 5. Treasury stock (common) was acquired at a cost of $20,000. State law requires a restriction of retained earnings in an equal amount. The company reports its retained earnings restrictions in a note to the financial statements.

Required:

  1. 1. Prepare a statement of retained earnings for the year ended December 31, 2019.
  2. 2. Prepare the note to disclose the restriction of retained earnings.

1.

To determine

Ascertain the statement of the retained earnings for the year 2019.

Explanation

Retained earnings:

Retained earnings are that portion of profits which are earned by a company but not distributed to stockholders in the form of dividends. These earnings are retained for various purposes like expansion activities, or funding any future plans.

Ascertain the statement of the retained earnings for the year 2019.

Company R
statement of  retained earnings
For the  year ended December 31,2019
ParticularsAmount in $Amount in $
Retained earnings, as previously reported, January 1, 2019 120,000
Add: Prior period adjustments:  
  Correction of understatement of previous income               9,800
Adjusted retained earnings, January 1, 2019            129,800
Add: Net income             80,000
             209,800
Less: Cash dividends13,000 
         Stock dividends17,000 

   �...

2.

To determine

Provide a note as to disclose the restriction placed on retained earnings

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