HW3.2 Retained Earnings Statement
Mason Industries Corporation began operations on January 1, 2022. During its first 3 years of
operations, Mason Industries reported net income and declared dividends as follows:
Year Net Income ($) Dividends Declared ($)
2022 60,000 -
2023 150,000 55,000
2024 175,000 65,000
The following information relates to 2025:
• Income before income tax: $280,000
• Prior period adjustment:
? Understatement of 2023 depreciation expense (before taxes): $20,000
• Cumulative decrease in income from change in inventory methods (before taxes): $38,000
• Dividends declared (of this amount, $30,000 will be paid on Jan. 15, 2026): $110,000
• Effective tax rate: 40%
Instructions:
1. Prepare a 2025 Retained Earnings Statement for Mason Industries Corporation.
2. Assume Mason Industries Corporation restricted retained earnings in the amount of
$90,000 on December 31, 2025. After this action, what would Mason report as total
retained earnings in its December 31, 2025, balance sheet?
