Question

Blue Corporation began operations on January 1, 2017. During its first 3 years of operations, Blue reported net income and declared dividends as follows: 2017 2018 2019 Net Income $43,800 134,500 162,400 Dividends declared $-0- 51,300 52,500 The following information relates to 2020. Income before income tax Prior period adjustments understatement of 2018 depreciation expense (before taxes) Cumulative decrease in income from change in inventory methods (before taxes) Dividends declared (of this amount. $25,400 will be paid on Jan 15, 2021) Effective tax rate $238,800 $25,400 $43.500 $103,800 20%

Answer 1

BLUE CORPORATION
Retained Earning Statement
For the year ended December 31 2020
Balance January 1 ( $ 43,800+ 134,500 + 162,400 - 51,300- 52,500)	$236,900
Depreciation correction( $ 25,400 - ( $25400× 20%)	($20,320)
Cumulative decrease in income ( $ 43,500 - ( $43,500×20%)	($34,800)
Adjusted Balance ( as of january 1)	$181,780
Add: Net Income [ ( $238,800 - ( $ 238,800 × 20%)]	$191,040
	$372,820
Deduct: Dividend Declared	($103,800)
Balance, December 31	$269,020

2) Total retained earnings: $ 269,020

Explanation:

1) Total retained earnings would still be reported as $269,020. A restriction does not usually affect total retained earnings.

2) It will only change the representation of it.

Retained Earnings
Appropriated	$64,540
Unappropriated	$ 204,489
Total	$ 269,020