Lee Corporation Equity Act 545

Lee Corporation Equity Scenario
 
    • Review the following information:
   
      Lee Corporation, a U.S. company, began operations on January 1, 2004.
      During its first 3 years of operations, Lee reported net income and declared dividends as follows.
       
                Net income                           Dividends declared
      2004                       $ 40,000                                                $ –0–
      2005                       125,000                                                                 50,000
      2006                       160,000                                                                 50,000
       
      The following information relates to 2007:
       
      Income before income tax $240,000
      Prior period adjustment: understatement of 2005 depreciation expense (before taxes) $ 25,000
      Cumulative decrease in income from change in inventory methods (before taxes) $ 35,000
      Dividends declared (of this amount, $25,000 will be paid on January 15, 2008) $100,000
      Effective tax rate 40%
 
|Lee Corporation                                                                                                                         |
|Retained Earnings Statement                                                                                                             |
|For the Year Ended December 31, 2007                                                                                                     |
|Balance, January 1, as                                                                       |        |$225,000*                         |
|reported....................................................................................|         |                                   |
|.                                                                                           |         |                                   |
|Correction for depreciation error (net of $10,000... [continues]

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