Question E4-17_c - Intermediate Accounting (Kieso)

Question

The following information was taken from the records of Roland Carlson Inc. for the year 2017: income tax applicable to income from continuing operations \(187,000, income tax applicable to loss on discontinued operations \)25,500, and unrealized holding gain on available-for-sale securities (net of tax) \(15,000. 

Gain on sale of equipment \)95,000      Cash dividends declared    $150,000

Loss on discontinued operations75,000 Retained earnings January1,2017 600,000

Administrative expenses               240,000        Cost of goods sold     850,000

Rent revenue                                   40,000          Selling expenses       300,000

Loss on write-down of inventory 60,000          Sales revenue             1,900,000

Shares outstanding during 2017 were 100,000.

Instructions

1. Prepare a single-step income statement.
2. Prepare a comprehensive income statement for 2017 using the two statement format.
3.  Prepare a retained earnings statement for 2017.

Step-by-Step Solution

Answer

(c) Balance in the retained earnings is $798,500.

Meaning of Retained earnings

Retained earnings refer to the cumulative profits of the business entities. Such earnings are reported after the settlement of dividends to stockholders. It is shown in the liabilities section under the shareholder’s equity head. 

Preparation of retained earnings statement

Roland Carlson Inc.
Retained Earnings Statement
For the year ended 2017
Particulars	Amounts ($)
Retained Earnings on January 1, 2017	600,000
Add: Net Income	348,500
	948,500
Less: Cash dividend	(150,000)
Retained Earnings on December 31, 2017	$798,500