Question

(Computation of Retained Earnings) The following information has been taken from the ledger accounts of Isaac Stern Corporation.

Total income since incorporation $317,000

Cash dividends paid 60,000

Total value of stock dividends distributed 30,000

Gains on treasury stock transactions 18,000

Unamortized discount on bonds payable 32,000

Instructions

Determine the current balance of retained earnings.

Short answer

The total current balance of Retained earnings is$227,000.

Step-by-step solution

Meaning of Retained Earnings

A corporation's retained earnings are the remaining profits after all of a corporation's costs, revenues, income taxes, and distributions to shareholdersare paid. An investment in new equipment, R&D, and marketing can be made using this portion of an organization's equity.

Determining the Current balance of Retained Earnings

Total income since incorporation	$317,000
Less: Total cash dividends paid $60,000 The total value of stock dividends is 30,000	90,000
The current balance of retained earnings	$227,000

The unamortized discount on bonds payable is shown as a contra liability; the gains on treasury stock are recorded as additional paid-in capital.