Question

Eddie Zambrano Corporation began operations on January 1, 2017. During its first 3 years of operations, Zambrano reported net income and declared dividends as follows:

	Net income		Dividends declared
2017	$40,000		$ –0–
2018	125,000		50,000
2019	160,000		50,000

The following information relates to 2020.

Income before income tax		$240,000
Understatement of 2018 depreciation expense (before taxes)		$25,000
Cumulative decrease in income from change in inventory methods (before taxes)		$35,000
Dividends declared		$100,000
Effective tax rate		20	%

1. Instructions: Prepare a 2020 retained earnings statement for Eddie Zambrano Corporation.

2. Suppose Eddie Zambrano Corporation had $70,000 of restricted retained earnings on December 31, 2020. How would its retained earnings be reported on its December 31, 2020, balance sheet?

Answer 1

Eddie Zambrano Corporation - Relained cornings Slalement for the year Ended bec 2010 -$_225.000 (5000) Balance, Jan 1, 01_.reported (40.000 +195000 + 160.000 - Goodb-.00) Correction for dep error (net of $25000 - 20% cumulative decrease in Income from chame in Inventary methods (not of $35000 - 30%) Balance, Jam_1, adjusted Add_net Income 240.000 – $100.000 R 2011 Deductis dividends declared - Balance Dec 31st ( 7000) $213.000 192.000 C100000) 305.000 _2 Total xetained Earnings arould still be repacted as $ 301700's A restriction usucello does not affect total retained Earnings. it merely dabels part of the retained earnings Las being emancutable for evenly_alistributed Retainees foxning would be selected as follows: Retained Edionings. * Appropriated_ =) 870000 I unappropriated $235000 Total $ 30.5000 -