Question

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

		Net income			Dividends declared
2017		$46,500			$ –0–
2018		135,000			53,900
2019		162,300			53,400

The following information relates to 2020.

Income before income tax		$234,700
Prior period adjustment: understatement of 2018 depreciation expense (before taxes)		$26,000
Cumulative decrease in income from change in inventory methods (before taxes)		$35,500
Dividends declared (of this amount, $26,000 will be paid on Jan. 15, 2021)		$107,300
Effective tax rate		20	%

Prepare a 2020 retained earnings statement for Oriole Corporation. (List items that increase adjusted retained earnings first.

)Assume Oriole Corporation restricted retained earnings in the amount of $68,980 on December 31, 2020. After this action, what would Oriole report as total retained earnings in its December 31, 2020, balance sheet?

Answer 1

Solution:

Retained earnings statement
Balance Jan 1 as reported	$236,500
Correction for Deprection error[26,000 -(26,000*20%)]	(20,800)
Cumulative decrease in income from change in inventory methods[35,500-(35,500*20%)]	(28,400)
Balance , Jan 1 , as adjusted	$187,300
Add: Net income[234,700-(234,700*20%)]	$187,760
	$375,060
Deduct : Dividend declared	($107,300)
Balance Dec 31	$267,760

Working:

Balance jan 1 as reported:

= net income - Dividends declared

=(46,500+135,000+162,300)-(53,900+53,400)

=$236,500

Dividends declared = 53,900 + 53,400

=107,300