Question

Below is the Retained Earnings account for the year 2017 for Buffalo Corp.

Retained earnings, January 1, 2017				$258,700
Add:
Gain on sale of investments (net of tax)		$42,300
Net income		85,600
Refund on litigation with government, related to the year 2014 (net of tax)		22,700
Recognition of income earned in 2016, but omitted from income      statement in that year (net of tax)		26,500		177,100
				435,800
Deduct:
Loss on discontinued operations (net of tax)		36,100
Write-off of goodwill (net of tax)		61,100
Cumulative effect on income of prior years in changing from      LIFO to FIFO inventory valuation in 2017 (net of tax)		24,300
Cash dividends declared		33,100		154,600
Retained earnings, December 31, 2017				$281,200

(a) Prepare a corrected retained earnings statement. Buffalo Corp. normally sells investments of the type mentioned above. FIFO inventory was used in 2017 to compute net income. (List items that increase adjusted retained earnings first.)

Answer 1

SOLUTION

Buffalo Corp.

Retained Earnings Statement

For the period ended December 31

Explanation	Amount ($)
Retained earnings, January 1, as reported	258,700
Correction of error from prior period (net of tax)	26,500
Adjustment for change in accounting principle (net of tax)	(24,300)
Retained earnings, January 1, as adjusted	260,900
Add: Net income	53,400*
Less: Cash dividends declared	(33,100)
Retained earnings, December 31	281,200

* Calculation of net income-

	Amount ($)
Net income as reported	85,600
Add: Gain on sale of investment	42,300
Add: Refund on litigation with government, related to the year 2014	22,700
Less: Loss on discontinued operations (net of tax)	(36,100)
Less: Write-off of goodwill	(61,100)
Net Income	53,400