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?