McEntire Corporation began operations on January 1, 2007. During its first 3 yea
ID: 2442244 • Letter: M
Question
McEntire Corporation began operations on January 1, 2007. During its first 3 years of operations, McEntire reported net income and declared dividends as follows.
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%
(a) Prepare a 2010 retained earnings statement for McEntire Corporation. (Enter all amounts as positive amounts and subtract where necessary.)
Explanation / Answer
Retained Earnings Statement Format $ Retained Earnings for the year Start. xxxx Add:Net Income xxxx Deduct: Dividends xxxx Retained Earnings for the year End. xxxx Putting the values Retained Earnings Statement Jan 1, 2010 balance. . . . . . . . .225,000 Net Income. . . . . . . . . . . . . . .132,000 Less: Understatement of depreciation expense net of taxes. . . . . . . . . . . . . . . .15,000 Less: Decrease in income due to change in inventory methods--net of taxes. . . . . . . . .27,000 Less: Dividends. . . . . . . . . . . . 100,000 Balance: Dec 31, 2010. . . . . . ..215,000