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Alpha Co.'s 2020 income statement showed net income of $1,340,000 and the 2020 Statement of Stockholders'...

Alpha Co.'s 2020 income statement showed net income of $1,340,000 and the 2020 Statement of Stockholders' equity showed that the Company declared dividends of $340,000, and issued common stock for $1,050,000. The Company also purchased 11,000 treasury shares at $7/share during 2020. Alpha Co. had retained earnings of $7,500,000 on January 1, 2020. What was Alpha Co.'s balance of retained earnings on December 31, 2020?

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Answer #1

Answer:

Calculation of Alpha Co.'s balance of retained earnings on December 31, 2020:

Particulars Amount
Balance of retained earnings on January 1, 2020 $7,500,000
Add: Net Income During the year $1,340,000
Less: Dividend ($340,000)
Balance of retained earnings on December 31, 2020 $8,500,000

Note: The issue of common stock then proceeds from the issue of a common stock affects total shareholders equity, it does not affect the retained earnings & purchase of treasury stock represent the purchase of its own stock from the shareholders & it is a contra equity account which does not affect the retained earnings.

Accordingly, Correction answer is $8,500,000.

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