How so prepare retained earning statement ?
(Retained Earnings Statement)
Eddie Zambrano Corporation began operations on January 1, 2004. During its first 3 years of operations, Zambrano reported net income and declared dividends as follows.
Net income Dividends declared
2004 $40,000 $ -0-
2005 125,000 50,000
2006 160,000 50,000
The following information relates to 2007.
Income before income tax $240,000
Prior period adjustment: understatement of 2005 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, 2008) $100,000
Effective tax rate 40%
Instructions
(a) Prepare a 2007 retained earnings statement for Eddie Zambrano Corporation. (Enter all amounts as positive amounts and subtract where necessary.)
Eddie Zambrano Corporation
Retained Earnings Statement
For the Year Ended December 31, 2007
Deduct: . Decr. In income from change in inventory methodsNet incomeDividends declaredBalance-January 1 as reported
Balance, December 31 $
(b) Assume Eddie Zambrano Corp. restricted retained earnings in the amount of $70,000 on December 31, 2007. After this action, what would Zambrano report as total retained earnings in its December 31, 2007, balance sheet?
Total retained earnings $
