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  • Oct 23, 2011, 01:11 PM
    nate2010
    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 owners equity and accompanying notes appropriate to the section. Note. Record the necessary journal entries before attempting to calculate other comprehensive income.

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