Q6P_(a) - Intermediate Accounting (Kieso)

Question

Question: Below is the Retained Earnings account for the year 2017 for Acadian Corp. 

Retained earnings, January 1, 2017                                                                                \(257,600 

Add: 

Gain on sale of investments (net of tax)                                            \)41,200 

Net income                                                                                             84,500 

Refund on litigation with government, related to 

the year 2014 (net of tax)                                                                      21,600                                

Recognition of income earned in 2016, but omitted 

from income statement in that year (net of tax)                                25,400                 172,700

430,300 

Deduct: 

Loss on discontinued operations (net of tax)                                   35,000 

Write-off of goodwill (net of tax)                                                        60,000 

Cumulative effect on income of prior years in changing

from LIFO to FIFO inventory valuation in 2017 (net of tax)             23,200

Cash dividends declared                                                                    32,000                   150,200

Retained earnings, December 31, 2017                                                                          $280,100

Instructions 

1. Prepare a corrected retained earnings statement. Acadian Corp. normally sells investments of the type mentioned above. FIFO inventory was used in 2017 to compute net income.

Step-by-Step Solution

Answer

The retained earnings is $280,100 on December 31, 2017.

Step 1: Meaning of Cash Dividend

The term cash dividend refers to the amount of revenue shareholders receive from companies in which they have invested their money. It provides them with returns in the form of cash.

Step 2: Computation of net income

Particulars	Amounts ($)
Reported net income	84,500
Add: Gain on sale of investment	41,200
Add: Refund on litigation with govt. (net of tax)	21,600
Less: Loss on discontinued operation (net of tax)	(35,000)
Less: Goodwill written off	60,000
Net income	$52,300

Step 3: Preparation of retained earnings statement

Acadian Corp.
Retained Earnings Statement
For the year ended December 31, 2017
Particulars	Amounts ($)
Retained earnings January 1, 2017	257,600
Add: Correction of error (Income earned, net of tax)	25,400
Less: Adjustment for change in inventory valuation	(23,200)
Retained earnings on January 1, 2017	259,800
Add: Net income	52,300
Less: Cash dividend	(32,000)
Retained earnings, December 31, 2017	$280,100