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Chapter 1: Q32E (page 41)

Preparing the statement of retained earnings Requirements 1. Prepare the statement of retained earnings for Wilson Towing Service for the month ending June 30, 2018. 2. What does the statement of retained earnings report?

Short Answer

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(1) Statement of retained earnings is shown as follows:

Wilson Towing Service
Statement of Retained Earnings
Year Ended June 30, 2018
Retained Earnings, June 1, 2018	$3,250
Net income for the year	11,700
	14,950
Dividends	(3,500)
Retained Earnings, December 31, 2018	$11,450

(2) Statement of retained earnings reports changes in the beginning balance of retained earnings.

Step by step solution

01

Step-by-Step-SolutionStep 1: Explanation on the statement of retained earnings

Statement of retained earnings represents the net change in the retained earnings due to income and dividend.

02

Explanation on retained earnings

Retained earnings are the accumulated profits of the prior or previous years.

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Most popular questions from this chapter

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Exeter is a building contractor on the Gulf Coast. After losing a number of big lawsuits, it was facing its first annual net loss as the end of the year approached. The owner, Hank Snow, was under intense pressure from the company’s creditors to report positive net income for the year. However, he knew that the controller, Alice Li, had arranged a short-term bank loan of $10,000 to cover a temporary shortfall of cash. He told Li to record the incoming cash as “construction revenue” instead of a loan. That would nudge the company’s income into positive territory for the year, and then, he said, the entry could be corrected in January when the loan was repaid. Requirements 1. How would this action affect the year-end income statement? How would it affect the year-end balance sheet? 2. If you were one of the company’s creditors, how would this fraudulent action affect you?

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