Retained Earnings Statement Rolt Company began 2016 with a $125000 balance in re

Question

Retained Earnings Statement

Rolt Company began 2016 with a $125000 balance in retained earnings. During the year, the following events occurred:

The company earned net income of $76000.

A material error in net income from a previous period was corrected. This error correction increased retained earnings by $9660 after related income taxes of $4140.

Cash dividends totaling $12500 and stock dividends totaling $19000 were declared.

One thousand shares of callable preferred stock that originally had been issued at $120 per share were recalled and retired at the beginning of 2016 for the call price of $125 per share.

Treasury stock (common) was acquired at a cost of $22000. State law requires a restriction of retained earnings in an equal amount. The company reports its retained earnings restrictions in a note to the financial statements.

Required:

1. Prepare a statement of retained earnings for the year ended December 31, 2016.

ROLT COMPANY Statement of Retained Earnings For Year Ended December 31, 2016 Retained earnings, as previously reported, January 1, 2016 $ Add: Correction due to understatement of previous income Adjusted retained earnings, January 1, 2016 $ Add: Net income $ Less: Cash dividends $ Less: Stock dividends Less: Reduction due to retirement of preferred stock Retained earnings, December 31, 2016 $

Explanation / Answer

STATEMENT OF RETAINED EARNING Retained earning as previously reported Jan1, 2016 125000 Add: Correction due to Understatement of previous income 9660 Adjusted retained earning 134660 Add: Net income 76000 210660 Less: Cash dividend 12500 Less: Stock Dividend: 19000 Less: Reduction due to retirement of Preferred stock 5000 Retained earnings ending balance 14000

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