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zweis2012
Sep 17, 2014, 09:52 AM
Eddie Zambrano Corporation began operations on January 1, 2011. During its first 3 years of operations, Zambrano reported net income and declared dividends as follows.






Net income



Dividends declared



2011

$40,000


$ –0–



2012

125,000


50,000



2013

160,000


50,000





The following information relates to 2014.



Income before income tax

$240,000



Prior period adjustment: understatement of 2012 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 January 15, 2015)

$100,000



Effective tax rate

40
%



Okay, this is the question I need to answer. I have answered most of it so far, but I'm not sure how to get the unadjusted retained earnings as of January 1, 2014. I'm also not sure on the second part of this question (shown below) what restricting retained earnings does on an income statement.

Assume Eddie Zambrano Corp. restricted retained earnings in the amount of $70,000 on December 31, 2014. After this action, what would Zambrano report as total retained earnings in its December 31, 2014, balance sheet?