P4-7 Retained Earnings Statement [Prior Period Adjustments]

Acadian Corp
Retained Earnings Statement/Statement of Changes in Equity
For the year ended December 31, 2019
Particulars Amount Total
Retained Earnings January 1, 2019 [Given] $257,600
Add: Correction of error from prior period income 2018 25,400
Less: Adjust for change in accounting principles (23,200)
Retained Earnings January 1, 2019 [Adjusted] $259,800
Add: Income from operation [Net Income] 84,500
Gain on sale of investments 41,200
Refund on litigation with government 21,600

Deduct: Write off goodwill (60,000)

Loss on discontinued operations (35,000)
Net Income [Adjusted] 52,300
Deduct: Cash dividend declared (32,000)
Retained Earnings December 31, 2019 $280,100

(b)
1. Gain on sale of investments—body of income statement. [Heading: Other Revenue and Gain]
This gain should not be shown net of tax on the income statement.
2. Refund on litigation with government—body of income statement, possibly unusual item.
[Heading: Other Revenue and Gain] This refund should not be shown net of tax on the income
statement.
3. Loss on discontinued operations—body of the income statement, [Heading: Discontinued
operation] following the caption, “Income from continuing operations.”
4. Write-off of goodwill—body of income statement, possibly un-usual item. [Heading: Other
Revenue and Gain] The write-off should not be shown net of tax on the income statement.

E4-12 [Retained Earnings Statement]

(a)
 McEntire Corporation
Retained Earnings Statement
For the year ended December 31, 2019
Particulars Amount Total
Retained Earnings January 1, 2019 $225,000
(40,000 + 125,000 + 160,000)- (50,000 + 50,000)
PRIOR PERIOD ADJUSTMENTS
Correction of depreciation error [net of $5,000 tax] [25,000- (20,000)
(25,000 X 20%)]
Cumulative decrease in income from change in inventory (36,000)
methods [net of $9,000 tax] [45,000-(45,000 X 20%)]
Retained Earnings January 1, 2019 [Adjusted] $169,000
Add: Net Income [$220,000 – ($220,000 X20%)] 176,000
Less: Dividends (100,000)
Retained Earnings December 31, 2019 $245,000

(b) Total retained earnings would still be reported as $245,000. A restriction does not affect total
retained earnings; it merely labels part of the retained earnings as being unavailable for
dividend distribution. Retained earnings would be reported as follows:

Appropriated $ 70,000
Unappropriated $175,000
Total $245,000