Managerial AccountingA

Jason Woo Corporation began operations on January 1, 2017. During its first 3 years of operations, Woo reported net income and declared dividends as follows:

 

Net income                 Dividends declared 2017                     $160,000                            $ –0– 2018                         500,000                         200,000 2019                          640,000                       200,000 The following information relates to 2020:
Income before income tax	$960,000
Prior period adjustment: understatement of 2018 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, 2021)	$400,000
Effective tax rate	20%

• Prepare a 2020 retained earnings statement for Jason Woo Corporation.
• Assume Jason Woo Corp. restricted retained earnings in the amount of $280,000 on December 31, 2020. After this action, what would Woo report as total retained earnings in its December 31, 2020, balance sheet?

Solution: