Determining the ending balance of reatainedearnings, and evaluating dividend policy. The following account balances were selected...

Determining the ending balance of reatainedearnings, and evaluating dividend policy.

The following account balances were selected from the records of Blake Corporation at December 31, 2017, after all adjusting entries were completed:

Common Shares (no par value; authorized 100,000 shares, issued 34,000 shares)	$ 680,000
Contributed surplus	163,000
Dividends surplus in 2017	18,000
Reatainedearnings, January 1, 2017	75,000
Correction of prior-period accounting error (a debit, net of income tax)	8,000
Income summary for 2017 (credit balance)	28,000

The stock price was $22.63 per share on that date.

Required:

1. Identify the amounts that would be reported in the retained earnings column of the statement of change in equity for 2017.

2. Prepare the shareholder's equity section of the statement of financial position at december 31, 2017.

3. Compute and evaluate the dividend yield ratio.

Expert Solution

1	Dividends surplus in 2017	18000	( As a reduction from retained earnings)
	Reatained earnings, January 1, 2017	75000	( As beginning balance of retained earnings)
	Correction of prior-period accounting error (a debit, net of income tax)	8000	( As a reduction from retained earnings)
	Income summary for 2017 (credit balance)	28000	( As an addition to retained earnings)

2	Stockholder's equity:
	Common Shares (no par value; authorized 100,000 shares, issued 34,000 shares)		680000
	Contributed surplus		1,63,000
	Retained earnings:
	Beginning balance	75000
	Add: Income summary for 2017 (credit balance)	28000
		103000
	Less:
	Correction of prior-period accounting error (a debit, net of income tax)	8000
	Dividends surplus in 2017	18000	77000
	Total stockholder's equity		9,20,000

3	Dividend yield ratio=Dividend per share/Stock price per share
	Dividend per share=Dividend surplus/Number of common shares issued=18000/34000=0.5294=0.53
	Dividend yield ratio=0.53/22.63=0.02342 or=2.34%

	Company was able to pay 2.34% of current stock price as dividend

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