Prepare a statement of changes in owner’s equity
Lee Corporation, a U.S. company, began operations on January 1, 2004.
During its first 3 years of operations, Lee 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 January 15, 2008): $100,000
Effective tax rate: 40%
Lee Corporation
Retained Earnings Statement
For the Year Ended December 31, 2007
Balance, January 1, as reported $225,000*
Correction for depreciation error (net of $10,000 tax) (15,000)
Cumulative decrease in income from change in
inventory methods (net of $14,000 tax)
(21,000)
Balance, January 1, as adjusted 189,000
Add: Net income 144,000**
333,000
Less: Dividends declared 100,000
Balance, December 31 $233,000
*($40,000 + $125,000 + $160,000) – ($50,000 + $50,000)
**[$240,000 – (40% X $240,000)]
Common stock $500
Treasury stock (-$200)
Additional paid-in principle $1000
Shares outstanding 375,940
Shares authorized 500,000
Shares in treasury 30,000
• Lee acquired a Canadian subsidiary whose sole asset is a piece of land. Lee acquired the subsidiary on 12/31/04 for the exact value of the land, CA$100,000. Lee owns 100% of the subsidiary. Go to Exchange Rates and use the historic lookup feature to determine exchange rates on 12/31/04, 12/31/05, and 12/31/06.
Prepare a statement of changes in owner’s equity and accompanying notes appropriate to the section. Note. Record the necessary journal entries before attempting to calculate other comprehensive income.
