Question

Pina Corporation began operations on January 1, 2014. During its first 3 years of operations, Pina reported net income and declared dividends as follows:
Net income Dividends declared
2014 $47,700 $-0-
2015 134,300 59,800
2016 161,700 53,500
The following information relates to 2017:
Income before income tax $248,700
Prior period adjustment: understatement of 2015 depreciation expense (before taxes) $31,800
Cumulative decrease in income from change in inventory methods (before taxes) $35,200
Dividends declared (of this amount, $31,800 will be paid on January 15, 2018) $113,300
Effective tax rate 40%
Required:
a. Prepare a 2017 retained earnings statement for Pina Corporation.

Answer 1

Answer:

The retained earnings statement showed a closing retained earnings of $226,120.00  as at 2017 year end.

Explanation:

In arriving at the closing retained earnings , I treated prior items retrospectively- that is as if the impact of such items have been in the accounts from day one,less the tax effect of all items involved.

For instance ,I deducted the understatement of depreciation in 2015 less of tax impact of 40%

Kindly find attached  for details.

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