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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 On January 1, 2019, Castillo Company had a retained earnings balance of $206,000. During the year, the following events occurred:

  1. 1. Treasury stock (common) was acquired at a cost of $14,000. 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.
  2. 2. Cash dividends totaling $9,000 and stock dividends totaling $6,000 were declared and distributed.
  3. 3. Net income was $58,000.
  4. 4. Two thousand shares of callable preferred stock were recalled and retired at a price of $150 per share. This stock had originally been issued at $130 per share.
  5. 5. A material error in net income for a previous period was corrected. This error correction decreased retained earnings by $12,600 after a related income tax credit of $5,400.

Required:

  1. 1. Prepare a statement of retained earnings for the year ended December 31, 2019.
  2. 2. Prepare a 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 C
statement of  retained earnings
For the  year ended December 31,2019
ParticularsAmount in $Amount in $
Retained earnings, as previously reported, January 1, 2019 206,000
Less: Prior period adjustments:  
  Correction of overstatement of previous income 12,600
Adjusted retained earnings, January 1, 2019 193,400
Add: Net income 58,000
  251,000
Less: Cash dividends9,000 
         Stock dividends6,000 

         Reduction due to retirement of preferred stock, retained

          earnings , December 31,2019 (1)

40,000

2.

To determine

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

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