Question

89.       For the year ended December 31, 2017, Transformers Inc. reported the following:

Net income                                                                             $300,000

Preferred dividends declared                                                     50,000

Common dividend declared                                                       10,000

Unrealized holding loss, net of tax                                               5,000

Retained earnings, beginning balance                                    400,000

Common stock                                                                         200,000

Accumulated Other Comprehensive Income,

    Beginning Balance                                                                 25,000

What would Transformers report as total stockholders' equity?

a.         $860,000

b.         $840,000

c.         $640,000

d.         $600,000

Answer 1

Answer:

a) $860,000

Calculation:

Common stock		$200,000
Retained earnings:beginning balance	$400,000
Add: net income	$300,000
Add: Accumulated other comporehensive income(after deducting unrealized holding loss)(25,000 - 20,000)	$20,000
Less: Preferred dividends declared	($50,000)
Less:Common dividends declared	($10000)	$660,000
Total stockholders' equity		$860,000

At the time of dividend delaration, retained earnings can be debited. Dividends need not to be actually paid for deducting it from retained earnings.