McEntire Corporation began operations on January 1, 2007. During its first 3 years of operations, McEntire reported net income and declared dividends as follows.
Year - Net Income - Dividends declared
2007 - $40,000 - $ -0
2008 -125,000 -50,000
2009 - 160,000 - 50,000
The following information relates to 2010.
Income before income tax $220,000
Prior period adjustment: understatement of 2008 depreciation expense (before taxes) $ 25,000
Cumulative decrease in income from change in inventory methods (before taxes) $ 45,000
Dividends declared (of this amount, $25,000 will be paid on Jan. 15, 2011) $100,000
Effective tax rate 40%
Instructions
(a) Prepare a 2010 retained earnings statement for McEntire Corporation.
(b) Assume McEntire Corp. restricted retained earnings in the amount of $70,000 on December 31, 2010. After this action, what would McEntire report as total retained earnings in its December 31, 2010, balance sheet?
Click here for the solution: McEntire Corporation began operations on January 1, 2007
