Question

Cheyenne Corporation began operations on January 1, 2014. During its first 3 years of operations, Cheyenne...

Cheyenne Corporation began operations on January 1, 2014. During its first 3 years of operations, Cheyenne reported net income and declared dividends as follows:

Net income

Dividends declared
2014 $47,800 $ –0–
2015 130,500 56,500
2016 167,700 60,000



The following information relates to 2017:

Income before income tax $248,300
Prior period adjustment: understatement of 2015 depreciation expense (before taxes) $28,800
Cumulative decrease in income from change in inventory methods (before taxes) $43,000
Dividends declared (of this amount, $28,800 will be paid on January 15, 2018) $116,500

Effective tax rate

Prepare a 2017 retained earnings statement for Cheyenne Corporation.

 40 %
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Answer #1
Cheyenne Corporation
Retained Earnings Statement
For the Year Ended December 31, 2017
Retained Earnings, January 1, as Reported 229500 =47800+130500+167700-56500-60000
Correction for depreciation error -17280 =28800*(1-40%)
Cumulative decrease in income from change in inventory methods -25800 =43000*(1-40%)
Retained Earnings, January 1, as Adjusted   186420
Add: Net income 148980 =248300*(1-40%)
335400
Less: dividends declared 116500
Retained Earnings, December 31 218900
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