Question

The records of Groot Corp. for calendar 2018 reflected the following correct pre-tax amounts:

• gain from discontinued operations, $50,000;

• cash dividends declared and paid, $45,000;

• retained earnings, January 1, 2018, $275,000,

• correction of accounting error, $35,000 debit;

• income before income taxes and before discontinued operations, $165,000.

The average income tax rate of 40 % applies to all items except the dividends.

Required

1. Calculate the December 31, 2018 ending balance of retained earnings.

Answer 1

	CALCULATION OF THE NET INCOME AFTER TAX
	PARTICULARS	AMOUNT
	Gain before discontinious opration =	$          1,65,000
	Add: Gain from discontinued operations	$              50,000
	Less: Correction of accounting error	$              35,000
	Net income	$          1,80,000
	Tax @ 40%	$              72,000
	Net Income after tax	$          1,08,000
	Less: Dividend Paid	$              45,000
	Balance transfer to Retaiend Earnings	$              63,000
	CALCULATION OF THE ENDING BALANCE OF RETAINED EARNING
	Opening balance of Retained Earning Jan, 01 2018	$          2,75,000
	Add: Addittion to the retained earning	$              63,000
	Closing Retained Earning	$          3,38,000