Question

Preparing a statement of retained earnings
Kelly May Bakery, Inc. reported a prior-period adjustment in 2018. An accounting error caused net income of prior years to be overstated by $1,000. Retained Earnings at December 31, 2017, as previously reported, was $48,000. Net income for 2018 was $74,000, and dividends declared were $28,000. Prepare the company’s statement of retained earnings for the year ended December 31, 2018.

Answer 1

Answer:

Retained earnings at December 31, 2018 is $93,000

Explanation:

Adjusted retained earnings at December 31, 2018 is calculated as

= Retained earnings in December 2017 - Over stated amount

= $48,000 - $1,000

= $47,000

Retained earnings for 2018 is calculated as;

= Net income - Dividend

= $74,000 - $28,000

= $46,000

Therefore,

Kelly May Bakery, Inc.'s statement of retained earnings for the year ended December 31, 2018

Adjusted retained earnings at December 31, 2017 $47,000

Retained earnings for 2018.

$46,000

Retained earnings at December 31, 2018

$93,000

Answer 2

Answer:

Retained Earnings, January 1, 2018 as originally reported 48,000

Prior period adjustment                                                         (1,000)

Retained Earnings, January 1, 2018 as adjusted                  47,000

Net Income for the year                                                         74,000

                                                                                                121,000

Dividends declared                                                                 (28,000)

Retained Earnings, December 31, 2018                               93,000

Explanation:

Retained Earnings at the end of 2017 (12/31/17) was 48,000 before error was noticed. So, originally reported would be 48,000 and if you ended 2017 with 48,000- you start 2018 with 48,000.

Prior period adjustment is the error that was reported, overstated by 1,000 means they were a 1000 over so that amount needs to be deducted. 48,000 - 1,000 = 47,000

Thus 47,000 is the adjusted retained earnings for (01//01/18)

Net Income (74,000) + Adjusted retained earnings (47,000) = 121,000

subtracts dividends declared because that'll be what you pay stockholders...

121,000-28,000=93,000

Answer for end of the year retained earnings is 93,000

Check Figure is 93,000