Question

Royal Corp’s financial information (in millions, except for Dividends) for Problems 2 and 3:

                                                         2019                2018
Accounts Payable                                            $ 7,000           $ 6,780

Accounts Receivable                                           5,000               4,685

Additional Paid-in Capital                                  4,000               4,000

Cash                                                                    8,577               5,654

Common Stock                                                   3,107               3,107          

Cost of Goods Sold                                        48,464           47,594

Depreciation                                                        1,315               1,244          

Dividends per share                                              1.53                 1.28

Goodwill                                                         18,051           19,121

Interest Expense                                                  1,200               1,100

Inventory                                                            8,871               8,101

Long-Term Debt                                                   ?                      ?

Net Property, Plant & Equipment                   26,500           25,311

Notes Payable                                                     4,200               3,770

Research & Development Expense                    1,847               1,747

Retained Earnings                                                   ?             23,045          

Revenue                                                          61,200           59,000

Selling General & Admin Expense                    3,200               3,024

Shares Outstanding                                            1,170              1,280

Treasury Stock                                                   (6,500)          (4,200)

                                   

Tax Rate = 30%

Note that a reduction in Goodwill would be similar to Depreciation Expense in a firm’s Operating Cash Flow.

Answer 1

First of all from the given information prepare a draft comparative trial balance for 2019 and 2018.

Equity and Liabilities	2019	2018
Common Stock	3107	3107
Additional Paid in Capital	4000	4000
Treasury Shares	(6500)	(4200)
Retained earnings	?	23045
Long Term Loan	?	?
Notes payable	4200	3770
Accounts payable	7000	6780
Total	66999	62872
Assets	2019	2018
Goodwill	18051	19121
Propert, Plant & Equipment	26500	25311
Stock	8871	8101
Accounts Receivable	5000	4685
Cash	8577	5654
Total	66999	62872

Then, follow the steps given below.

Step 1: Make a Total of Assets side of 2018.

Step 2: As in Balance Sheet both sides i.e. Assets and Liabilities total has to be equal and the Coloumn of Long Term loan is the only coloumn with Missing figures the Balance is and will be the long term loan Amt.

Step 3: The amount of Long Term loan will be same in 2019 also as there are no additional instructions.

Step 4: By keeping Long Term Loan at 2018 level, repeat step 2 for 2019, and you will get the balance of retained earnings.

Hence, the missing figures are as follows:

Long term Loan: 26370

Retained earnings: 28822

This is the most easy way to answer this type of questions.

Reconcilliation of Retained earnings for 2019 can also be done using P&L Approach whereas this solution is based on Balance Sheet Approach.