Question

Stellar Corporation began operations on January 1, 2014. During its first 3 years of operations, Stellar reported net income and declared dividends as follows.Net incomeDividends declared2014 $49,500 $ –0– 2015 128,600 59,600 2016 161,000 58,800 The following information relates to 2017.Income before income tax $231,000 Prior period adjustment: understatement of 2015 depreciation expense (before taxes) $32,000 Cumulative decrease in income from change in inventory methods (before taxes) $44,800 Dividends declared (of this amount, $32,000 will be paid on January 15, 2018) $118,400 Effective tax rate 40 %Prepare a 2017 retained earnings statement for Stellar Corporation. (List items that increase adjusted retained earnings first.)

Answer 1

$194,820

Step-by-step explanation:

Retained earnings at the end of 2017 is computed thus:

2014 net income $49,500

2014 dividends ($0)

2014 retained earnings $49,500

2015 net income $128,600

2015 dividends ($59,600)

2015 retained earnings $118,500

2016 net income $161,000

2016 dividends ($58,800)

2016 retained earnings $220,700

understatement of depreciation expense

after tax impact $32,000-(40%*$32,000) ($19,200)

After tax impact of decrease in net income due

to inventory method $44,800-($44,800*40%) ($26,880)

Adjusted retained earnings for 2016 $174,620

net income for 2017 $231,000-($231,000*40%) $138,600

dividends declared for 2017 ($118,400)

Retained earnings for 2017 year end $194,820

Retained earnings in the adjustment in each is the retained earnings brought forward plus the net income for the current year minus dividends declared for the year