Solution to Practice Statement of Retained Earnings Quiz

Solution to Practice Statement of Retained Earnings Quiz

The following information is available for Winston Inc.

Beginning Retained Earnings $820,000

Dividends $ 60,000

Dividends Payable $ 20,000

Extraordinary Gain $100,000

Net Income (includes all relevant items) $410,000

Rent Revenue omitted in fiscal year 2009 due to error $ 80,000

The tax rate for all years is 30%.

Prepare a Statement of Retained Earnings for Winston Inc. for the 9-30-12 year end.

Winston Inc.

Statement of Retained Earnings

For year ended Sept. 30, 2012

Retained Earnings, Beginning $820,000

Prior Period Adjustment

Omitted Rent Revenue $ 80,000

Less Income Tax Effect (80,000 X .3) (24,000) 56,000

Retained Earnings, Beginning, as Restated $ 876,000

Net Income 410,000

1,286,000

Less Dividends 60,000

Retained Earnings, Ending 1,226,000

• Do not include Dividends Payable because it is a Current Liability. It is the part of the $60,000 Dividends that have not been paid in cash yet.

• Net Income includes all relevant items so the provided number can be used. The Extraordinary Gain is already added in and income tax has already been deducted.

• The Prior Period Adjustment was added because the Rent Revenue that was not previously recorded would have increased Net Income in 2009 when it should have been reported.

• The only other thing that could have been on the Statement of RE (but was not in this problem’s information) was the Cumulative Effect of Change in Accounting Principle.