A company has 60,000 shares of $4 par value common stock and 10,000 shares of 5%

Question

A company has 60,000 shares of $4 par value common stock and 10,000 shares of 5%, $100 par, cumulative preferred stock outstanding. The balance in Retained Earnings account at the beginning of a as $300,000 and two year's dividends were in arrears at the beginning of the year. Net income for the current year was $400,000. The company paid preferred dividends and $1 per share on its common stock in the current year. What is the balance in Retained Earnings account at the end of the year of this year? Pizza Pier retires its 7% bonds for $70,000 before their scheduled maturity. At the time, the bonds have a carrying value of $74,937. Record the early retirement of the bonds.

Explanation / Answer

Dividend to be paid:
Preferred = 10,000 x 100 x 5% x 2 = $100,000
Equity = 1 x 60,000 = $60,000
Total Dividend = 160,000

Retained Earnings ending balance = 300,000 + 400,000 - 160,000 = $540,000

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