I’m hoping to get some clarification on the Self-Testing exercise 4. The solution (pg124) has the ordinary shares @ $12000 however the information on page 111 shows a figure of 7000….please can you clarify the difference and where I need to look to calculate the correct figure. I have looked at the other examples and am finding it difficult to work out where these figures are coming from on the retained earnings solution tables.
Also I am having difficultly working out where the figures for the “Balances” $358000 & $392000 on the solution comes from or how it is calculated? Is it just a total of the from the Balance on the right hand side and the profit and loss less the dividends paid out?
Self-Testing exercise 4 – Retained Earnings Ledger Account for the year end 30th June 2017.
Credit side of the ledger – Opening balance $80,000 from Table one of the question
Current year earnings $ 312,000 – from 2nd table last sentence ie Net Profit before tax less Tax ($500,000 less $188,000).
Debit Side of the Ledger –
Interim Dividend – Feb 2017 = $10,000
Final preference June -2017 = 6% X 200,000 Shares of $1 = $12,000
Final dividends – June 2017 Ordinary 240,000 shares (Refer the Note) x 5 cents = $12,000
Credit Side total is higher ie $392,000 , balance the ledger to find the closing balance ie $392,000 less ($10,000+$12,000+$12,000) = $358,000.
Aug 2016 are payment of previous year dividends –
Double entry is Dr Dividend payable account , Credit Bank Account.($12,000 + $7000)
Therefore no affect to current year Retained earnings account.
Hope this helps.
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