What does the statement of retained earnings report?
The statement of retained earnings reports how the corporation's retained earnings balance transformed from the start of the period to the end of the period.
Retained earnings is the amount of net income left with the corporation after it has paid dividends to its stockholders.
The statement of retained earnings is the connecting point between the income statement and the balance sheet of a corporation. It shows any deductions from the earning after tax to determine the net sum that to be added in shareholder's equity.
Computing dividends on preferred and common stock and journalizing
Northern Communications has the following stockholders’ equity on December 31,
Preferred Stock—5%, $11 Par Value; 150,000 shares authorized, 20,000 shares issued and outstanding
Paid-In Capital in Excess of Par—Common 680,0006
Total Paid-In Capital 1,660,000
Retained Earnings 200,000
Total Stockholders’ Equity $ 1,860,000
Common Stock—$2 Par Value; 575,000 shares
authorized, 380,000 shares issued and outstanding
1. Assuming the preferred stock is cumulative, compute the amount of dividends to preferred stockholders and to common stockholders for 2018 and 2019 if total dividends are $9,000 in 2018 and $45,000 in 2019. Assume no changes in preferred stock and common stock in 2019.
Analyzing the effect of prior-period adjustments
Taylor Corporation discovered in 2019 that it had incorrectly recorded in 2018 a cash payment of $70,000 for utilities expense. The correct amount of the utilities expense was $35,000.
1. Determine the effect of the error on the accounting equation in 2018.
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