The records of Groot Corp. for calendar 2018 reflected the following correct pre

Question

The records of Groot Corp. for calendar 2018 reflected the following correct pre-tax amounts:

• gain from discontinued operations, $50,000;

• cash dividends declared and paid, $45,000;

• retained earnings, January 1, 2018, $275,000,

• correction of accounting error, $35,000 debit;

• income before income taxes and before discontinued operations, $165,000.

The average income tax rate of 40 % applies to all items except the dividends.

Required

1. Calculate the December 31, 2018 ending balance of retained earnings.

Explanation / Answer

CALCULATION OF THE NET INCOME AFTER TAX PARTICULARS AMOUNT Gain before discontinious opration = $          1,65,000 Add: Gain from discontinued operations $              50,000 Less: Correction of accounting error $              35,000 Net income $          1,80,000 Tax @ 40% $              72,000 Net Income after tax $          1,08,000 Less: Dividend Paid $              45,000 Balance transfer to Retaiend Earnings $              63,000 CALCULATION OF THE ENDING BALANCE OF RETAINED EARNING Opening balance of Retained Earning Jan, 01 2018 $          2,75,000 Add: Addittion to the retained earning $              63,000 Closing Retained Earning $          3,38,000

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