Eddie Zambrano Corporation began operations on January 1, 2011. During its first 3 years of operations, Zambrano reported net income and declared dividends as follows.

E4-12 Eddie Zambrano Corporation began operations on January 1, 2011. During its first 3 years of operations, Zambrano reported net income and declared dividends as follows.

Year	Net income	Dividends declared
2011	$40,000	$0
2012	125,000	50,000
2013	160,000	50,000

 

The following information relates to 2014:
Income before income taxes	$240,000
Prior period adjustment: Understatement of 2012 depreciation expense. (Before taxes)	$25,000
Cumulative decrease in income from change in inventory methods (before taxes)	$35,000
Dividends declared	$100,000
dividends declared (of this amount, $25,000 will be paid on Jan 15, 2015 is)	$25,000
Effective tax rate	40%

Instructions

(a) Prepare a 2014 retained earnings statement for Eddie Zambrano Corporation.

(b) AssumeEddie Zambrano Corp. restricted retained earnings in the amount of $70,000 on December 31, 2014. After this action, what would Zambrano report as total retained earnings in its December 31, 2014, balance sheet?

TUTORIAL PREVIEW

(a) Prepare a 2014 retained earnings statement for Eddie Zambrano Corporation.

Eddie Zambrano Corporation Retained Earnings Statement For the Year Ended December 31, 2014
Balance, January 1, as reported ($40,000 + $125,000 + $160,000 - $50,000 - $50,000)	$225,000
Correction for depreciation error (net of $25,000, - 40% tax rate or $10,000 tax)	-15,000

File name: E4-12 Eddie Zambrano.xls  File type: xls  PRICE: $4