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The following balances have been extracted from Saracen’s trial balance at 31 December 20X6
Retained earnings as at 1 January 20X6 4,695,600(Credit)
10% Loan notes issued in 20X3 1,300,000(Credit)
Loan note interest paid 65,000 (Debit)Profit for the year ended 31 December 20X6 is $ 520,000.Income tax for the year has been estimated at $156,000
What is the figure for retained earnings in Saracen’s statement of financial statement of financial position as at 31 December 20X6?
so the answer is $ 4,695,600 + $ 520,000 – $ 156,000 – $ 130,000 = $ 4,929,600
May I ask why it need to deduct the loan note interest $ 130,000 ?
Interest paid will reduce the profit and will therefore reduce the retained earnings.
The fact that 65,000 interest paid appears on the trial balance means two things – firstly that the interest has not yet been used to reduce the profit (otherwise it would not appear separately on the trial balance) and of course that they need to accrue an extra 65,000 because the total interest for the year should be 130,000 (10%).
Hey I’d like to ask a question,
At 1 July 20X4 a limited liability company’s capital structure was as follows:
$
Share capital 1,000,000 shares of 50c each 500,000
Share premium account 400,000
In the year ended 30 June 20X5 the company made the following share issues:
1 January 20X5:
A bonus issue of one share for every four in issue at that date, using the share premium account.
1 April 20X5
A rights issue of one share for every ten in issue at that date, at $1.50 per share.
What will be the balances on the company’s share capital and share premium accounts at 30 June
20X5 as a result of these issues?And i understand all the calculation but what confuses me is why the right issue is 125.000? I thought it would be 100.000 because 1000.000 x 1/10 due to (one share for every ten) Please help me, and thank you in advance
In future please start a new thread when you are asking a different question.
The rights issue was made after the bonus issue.
After the bonus issue there were 1,250,000 shares in issue, and therefore the rights issue is for 1/10 x 1,250,000.
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