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?
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?