Answer :
Answer and Explanation:
a.
Retain earnings, year 2
= retained earnings year 1 + earning for year 2
= $825,000 + ($245,000 - $65,000)
= $825,000 + $180,000
= $1,005,000
Therefore, The December 31, Year 2, Retained Earnings balance is $1,005,000.
b.
trading inverstments are classified under current assets. the closing balance of trading inverstments is:
trading inverstments purchased at cost in year 2 $346,000
trading inverstments sold at cost in year 2 $66,000
balance of trading inverstments at cost $280,000
The balance sheet is present like:
D-Tec Inc
balance sheet
particulars amount($)
current asstes
trading inverstments(at cost) 280,000
valuation allowance for trading inverstment (72,500)
trading inverstments(at fair value) 207,500
The Retained Earnings of Delta-tec Inc. as of December 31, Year 2, is $1,005,000. The balance sheet disclosure for Trading Investments on December 31, Year 2, would show an ending balance of $280,000.
To determine the Retained Earnings balance of Delta-tec Inc. as of December 31, Year 2, we begin by starting with the Retained Earnings balance from the previous year. To this, we add the net income for the current year and subtract any dividends paid. The calculation is as follows:
Retained Earnings (Beginning balance) = $825,000
Net Income (for Year 2) = $245,000
Dividends Paid (during Year 2) = $65,000
Retained Earnings (End balance) = $825,000 + $245,000 - $65,000
Retained Earnings (End balance) = $1,005,000
For the balance sheet disclosure of Trading Investments on December 31, Year 2, we must account for the cost of purchases and subtract any sales. The company had purchased trading investments costing $346,000 and sold investments with a cost of $66,000, which resulted in a gain (included in net income). Hence:
Trading Investments (Purchased) = $346,000
Less: Investments Sold = $66,000
Trading Investments (Ending balance) = $346,000 - $66,000
Trading Investments (Ending balance) = $280,000
