Answer:
Eddie Zambrano Corporation
a. Retained Earnings Statement for the year ended December 31, 2020
Retained earnings, January 1, 2020 = $225,000
2020 Income after tax = $192,000
Prior period adjustment: understatement of 2018 depreciation expense (before taxes) ($ 25,000)
Cumulative decrease in income from change in inventory methods (before taxes) ($ 35,000)
Dividends declared (of this amount, $25,000 will be paid on Jan. 15, 2021)
($100,000)
Total deductions = $160,000
Retained earnings, December 31 $257,000
b. With the restricted retained earnings in the amount of $70,000, dividends declared cannot exceed $62,000 ($100,000 - $38,000), therefore the Retained earnings in its December 31, 2020 balance sheet would be $295,000.
Explanation:
a) Data and Calculations:
Net Income Dividends Declared Cumulative Retained Earnings
2017 $ 40,000 $ –0– $40,000 ($40,000)
2018 125,000 50,000 115,000 ($40,000 + 75,000)
2019 160,000 50,000 225,000 ($115,000 + 110,000)
2020 Income before tax = $240,000
Tax for 2020 (20%) 48,000
2020 Income after tax = $192,000
Prior period adjustment: understatement of 2018 depreciation expense (before taxes) $ 25,000
Cumulative decrease in income from change in inventory methods (before taxes) $ 35,000
Dividends declared (of this amount, $25,000 will be paid on Jan. 15, 2021) $100,000
Total deductions = $160,000 ($25,000+35,000+100,000)
Retained earnings for 2020 = $32,000 ($192,000 - $160,000)
a. Retained Earnings Statement for the year ended December 31, 2020
Retained earnings, January 1, 2020 = $225,000
2020 Income after tax = $192,000
Prior period adjustment: understatement of 2018 depreciation expense (before taxes) ($ 25,000)
Cumulative decrease in income from change in inventory methods (before taxes) ($ 35,000)
Dividends declared (of this amount, $25,000 will be paid on Jan. 15, 2021)
($100,000)
Total deductions = $160,000
Retained earnings, December 31 $257,000
b. With the restricted retained earnings in the amount of $70,000, dividends declared cannot exceed $62,000 ($100,000 - $38,000), therefore the Retained earnings in its December 31, 2020 balance sheet would be $295,000 ($257,000 + $38,000).
