Financial Accounting
Financial Accounting
5th Edition
ISBN: 9781259914898
Author: SPICELAND
Publisher: MCG
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Chapter 3, Problem 15E
To determine

Calculate the balance of retained earnings each year for Incorporation V and Incorporation R.

Expert Solution & Answer
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Answer to Problem 15E

The balance of retained earnings each year for the given companies is as follows:

Incorporation V Incorporation R
YearNet income (Net loss)Retained earnings Net income (Net loss)Retained earnings
2012$0$0 $35$11
2013$30$30 ($43)($32)
2014($7)$23 $63$31
2015$41$64 $63$94
2016$135$199 $102$196
2017$30$229 $135$331
2018($131)$98 ($42)$289
2019$577$675 $74$363
2020$359$1,034 $110$473
2021$360$1,394 $162$635

Table (1)

Explanation of Solution

Retained earnings:

Retained earnings are the portion of earnings kept by the business for the purpose of reinvestments, payment of debts, or for future growth.

Working note:

1. Calculate the retained earnings Incorporation V.

Year 2013:

Ending retained earnings=(Beginning retained earnings + Net income – Dividends)=$0 +$30million$0=$30million (1)

Year 2014:

Ending retained earnings=(Beginning retained earnings – Net loss – Dividends)= $30 million $7million$0=$23million (2)

Year 2015:

Ending retained earnings = (Beginning retained earnings + Net income – Dividends)= $23 million +$41million$0=$64million (3)

Year 2016:

Ending retained earnings = (Beginning retained earnings + Net income – Dividends)= $64 million +$135million$0=$199million (4)

Year 2017:

Ending retained earnings = (Beginning retained earnings + Net income – Dividends)= $199 million +$30million$0=$229million (5)

Year 2018:

Ending retained earnings = (Beginning retained earnings – Net loss – Dividends)= $229 million $131million$0=$98million (6)

Year 2019:

Ending retained earnings = (Beginning retained earnings + Net income – Dividends)= $98 million +$577million$0=$675million (7)

Year 2020:

Ending retained earnings = (Beginning retained earnings + Net income – Dividends)= $675 million +$359million$0=$1,034million (8)

Year 2021:

Ending retained earnings = (Beginning retained earnings + Net income – Dividends)= $1,034 million +$360million$0=$1,394million (9)

2. Calculate the retained earnings Company R.

Year 2013:

Ending retained earnings = (Beginning retained earnings – Net loss – Dividends)= $11 million $43million$0=($32million) (10)

Year 2014:

Ending retained earnings = (Beginning retained earnings + Net income – Dividends)= $(32 million ) +$63million$0=$31million (11)

Year 2015:

Ending retained earnings = (Beginning retained earnings + Net income – Dividends)= $31 million +$63million$0=$94million (12)

Year 2016:

Ending retained earnings = (Beginning retained earnings + Net income – Dividends)= $94 million +$102million$0=$196million (13)

Year 2017:

Ending retained earnings = (Beginning retained earnings + Net income – Dividends)= $196 million +$135million$0=$331million (14)

Year 2018:

Ending retained earnings = (Beginning retained earnings – Net loss – Dividends)= $331 million $42million$0=$289million (15)

Year 2019:

Ending retained earnings = (Beginning retained earnings + Net income – Dividends)= $289 million +$74million$0=$363million (16)

Year 2020:

Ending retained earnings = (Beginning retained earnings + Net income – Dividends)= $363 million +$110million$0=$473million (17)

Year 2021:

Ending retained earnings = (Beginning retained earnings + Net income – Dividends)= $473 million +$162million$0=$635million (18)

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Chapter 3 Solutions

Financial Accounting

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