Rex Company reported $410,000 in retained earnings at December 31, 2014. Reese h

Question

Rex Company reported $410,000 in retained earnings at December 31, 2014. Reese had 160,000 shares of common stock outstanding throughout 2015. The following transactions occurred during 2015: 1. An error was discovered. Depreciation expense in 2011 was recorded at $60,000; the correct amount should have been $50,000. 2. A cash dividend of $0.50 per share was declared and paid. 3. A 5% stock dividend was declared and distributed when the market price per share was $15 per share. 4. Net income was $225,000.

Explanation / Answer

Retained earnings statement for 2015

Opening balance on 1 jan 2015. $410000

Add understated income (depreciation) $10000

Adjusted income. $ 420000

Hence,

Adjusted income $420000

Net income 2015. $225000

Total $645000

Less Cash dividend $ 80000

(160000 shares × .50 per share)

Less stock dividend. $120000

(160000 shares× 5% ×15 market value )

Balance as on december 2015. $445000

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