Exercise E4-12B (Retained Earnings Statement)

E4-12B (Retained Earnings Statement) Jason Woo Corporation began operations on January 1, 2012. During

its first 3 years of operations, Woo reported net income and declared dividends as follows.

             Net income                Dividends declared

2012       $160,000              $ –0–

2013         500,000                200,000

2014         640,000                200,000

The following information relates to 2014.

Income before income tax $960,000

Prior period adjustment: understatement of 2013 depreciation expense (before taxes) $100,000

Cumulative decrease in income from change in inventory methods (before taxes) $140,000

Dividends declared (of this amount, $100,000 will be paid on Jan. 15, 2015) $400,000

Effective tax rate 40%

Instructions

(a) Prepare a 2014 retained earnings statement for Jason Woo Corporation.

(b) Assume Jason Woo Corp. restricted retained earnings in the amount of $280,000 on December 31,

2014. After this action, what would Woo report as total retained earnings in its December 31, 2014,

balance sheet?