Question

E14.7. (LO 1 2, 3, 4 ) AP On January 1, 2021, Fyre Lite Corporation had retained earnings of $650,000. During the year, Fyre Lite had the following selected transactions:

Prepare a statement of retained earnings with correction of prior period error.

1. 1. Declared and paid cash dividends, $245,000.
2. 2. Earned profit before income tax, $750,000.
3. 3. Corrected a prior period error of $85,000, before income tax, which resulted in an understatement of profit in 2020.
4. 4. Reacquired 25,000 common shares for $50,000 more than the original issue price. This was the first time the company had ever reacquired its own shares.
5. 5. Completed a 3-for-1 stock split of the common shares.

Fyre Lite has a 25% income tax rate and reports under ASPE.Instructions:

Prepare a statement of retained earnings for the year ended December 31, 2021.

E14.8. (LO 1, 4, 5) AP Kettle Creek Corporation had the following transactions and events: Indicate effects of transactions on shareholders' equity. 1. Declared a cash dividend. 2. Issued common shares for cash. 3. Completed a 2-for-1 stock split of the common shares. 4. Declared a stock dividend on the common shares. 5. Distributed the stock dividend declared in item 4. 6. Made a correction of a prior period error for an understatement of profit. 7. Repurchased common shares for less than their initial issue price. 8. Comprehensive income included profit and a gain reported as other comprehensive income. Instructions Indicate the effect(s) of each of the above items on the subdivisions of shareholders' equity. Present your answer in tabular form with the following columns. Use “I” for increase, “D” for decrease, and “NE” for no effect. Item 1 is given as an example. Contributed Capital Retained Accumulated Other Total Shareholders' Item Share Capital Additional Earnings Comprehensive Income Equity NE NED D 1. NE

Answer 1

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Fyre lite Corporation
Statement of retained earnings
Balance at the beginning	$       650,000.00
Add : Net Income after Tax = $750,000 x (1-25%)	$       562,500.00
Add : Corrected after Tax = $85,000 x (1-25%)	$         63,750.00
Less: Dividend Paid	$     (245,000.00)
Less: Cost to Reacquire shares	$       (50,000.00)
Balance at the end	$       981,250.00
Completed a 3-for-1 stock split of the common shares will not have any impact on retained earnings