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? ? C ? ? ezto.mheducation.com/hm.tpx?todo-postsubmissionview conect Hw11 Score: 13.8715 Points 92.47% Question 15. Award: 217 out of 2.50 ponts The following account balances were selected from the records of beverage maker Blake Corporation December 31 after all adjusting entries were completed Common stock (par $15: authorized 100,000 shares. issued 29,000 shares of which 1.100 shares are heid as treasury stock) Additional paid-in capital-common stock Dividends Retained eamings, beginning of year Treasury stock at cost (1.100 shares) $435.000 174,000 22,000 70.000 22,000 Net income for the year was $39.000 Required 1-3. Prepare the statement of retained earnings for the year enced December 31 BLAKE CORPORATION Statement of Retained Earnings For the Year Ended December 31 Retainec Eanings anuary 1 0 32000 Add. Net income ess Divicends Retainec Eaeings December 35 Arcbunts

Explanation / Answer

1-a.

Statement of retained earnings has been correctly prepared by the student.

1-b.

In the stockholders' equity section of the balance sheet, treasury stock will be $22,000 as given in the question and not $20. Therefore, $22,000 should be subtracted the total of $696,000 to get the correct answer which is $674,000.

Treasury stock is a contra-equity account. Therefore, its balance should always be subtracted from the sum of total contributed capital and retained earnings.

1-c.

ROE ratio for the current year will be calculated as follows:

ROE = Net income/Average stockholders' equity = $39,000/[($674,000+$623,000)/2] = $39,000/$648,500 = 6%

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