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Intermediate Accounting II: Problem 15-A My professor said that for the retained earnings section of the...

Intermediate Accounting II: Problem 15-A

My professor said that for the retained earnings section of the Stockholders' Equity portion, we need to include the net income of $130,000 to our retained earnings balance. That would give us retained earnings of $445,900 and subsequently a total stockholders' equity of $844,600. Is that correct? My professor has been known to have a slip up from time to time...

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Expert Solution

Statement of Retained Earning:
Retained earning, Beginning $     3,15,900 (Balancing figure)
Add:Net Income $     1,30,000
Total $     4,45,900
Less:Dividend declared 0
Retained Earning, Ending $     4,45,900
From above you can understand that your answer will be correct in case there is no dividend.
If there is dividend declared then amount of dividend will be deducted from $ 445,900 and subsequently you will get the
correct ending balance of Retained Earning and Stockholder's equity balance accordingly.
Suppose there is $ 100,000 dividend declared then,
Statement of Retained Earning:
Retained earning, Beginning $     3,15,900
Add:Net Income $     1,30,000
Total $     4,45,900
Less:Dividend declared $     1,00,000
Retained Earning, Ending $     3,45,900

ekkarill92 answered 2 years ago
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