Question

Retained Earnings Statement Rolt Company began 2016 with a $145,000 balance in retained earnings. During the year, the following events occurred: The company earned net income of $90,000. A material error in net income from a previous period was corrected. This error correction increased retained earnings by $10,150 after related income taxes of $4,350. Cash dividends totaling $12,500 and stock dividends totaling $19,500 were declared. One thousand shares of callable preferred stock that originally had been issued at $105 per share were recalled and retired at the beginning of 2016 for the call price of $115 per share. Treasury stock (common) was acquired at a cost of $16,000. 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 $

Answer 1

Solution:

Rolt Company
Statement of retained earnings
for year ended Dec 31, 2016
Particulars	Amount
Retained earnings, as previously reported, January 1, 2016	$145,000.00
Add: Correction due to understatement of previous income	$10,150.00
Adjusted retained earnings, January 1, 2016	$155,150.00
Add: Net income	$90,000.00
Less: Cash dividends	$12,500.00
Less: Stock dividends	$19,500.00
Less: Reduction due to retirement of preferred stock (1000*$10)	$10,000.00
Retained earnings, December 31, 2016	$203,150.00