Question

need help with this retained earnings with ppa for eddie zambrano

2 of 6 Chapter 04 Homework - Statement of Retained Earnings Exercise 4-12 Statement of retained earnings with PPA Eddie Zambrano Corporation began operations on January 1, 2017. During its first 3 years of operations, Zambrano reported the following: Year Net income Dividends 2017 $4,000 $ 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 method (before taxes) 35,000 Dividends declared 100,000 Effective tax rate for all years 20% Instructions: Prepare a statement of retained earnings for the current year. of 6 738 words X D Focus

Answer 1

Preparation of Statement of Retained earnings for the current year:

Statement of Retained earnings
Retained Earnings as on Jan 1, 2020 (note1)	$225000
Correction for depreciation error, net of taxes [$25000-($25000×20%)]	($20000)
Cumulative decrease in income from change in inventory method,net of taxes [$35000-($35000×20%)]	($28000)
Adjusted Retained Earnings balance as on jan1, 2020	$177000
Add: Net income (note2)	$192000
Less: Dividends declared	($100000)
Reatined Earnings balance as on Dec31, 2020	$269000

Notes:

1. Calaculation of Retained earnings balance as on jan1, 2020 (unadjusted)

.	($)
Net income for year 2017	$40000
Net income for year 2018	$125000
Net income for year 2019	$160000
Less: Dividends
For 2017	($0)
For 2018	($50000)
For 2019	($50000)
Retained earnings balance as on jan1, 2020	$225000

2. Calaculation of Net income for year 2020:

.	($)
Income before income taxes	$240000
Less: income tax @ 20% ($240000×20%)	($48000)
Net income	$192000

_______×________

Let me know if you have any queries, All the best,

Kindly UPVOTE,  

Keep Learning