# Retained Earnings

Calculate the current balance of retained earnings using the following info: Total income since incorporation: \$880,000 Total cash dividends pad: \$260,000 Total par value of 20% stock dividends distributed (market value of \$100,000): \$60,000 Excess proceeds over par value of stock issued: \$100,000

RE = 880 - 260 = 620

RE = 880 - 260 - 100 = \$520 That’s from BSAS 2007 AM. I don’t even know why I bother with this exam. Some of the questions are so out there… does anyone else find this? delhi, how did you do on the FSA section?

is there any reason to include the div paid out and the excess proceeds taken in to RE?

Why are we taking the Stock dividends out? How does it affect RE?

It is 20% stock dividends distributed. So those go out of retained earnings at Par (anything more than 5%). Only those below 5% Stock dividends (small stock dividends) go out at Market value. So there would be no effect of the 60 Shown in the problem. so 880 - 260 - 100 = 520

For the record: Small stock dividends (less than 20%) are recorded on a market value basis. So if a company had 1M Shares, market price = 30, Par = 2, and it declared a 6% stock dividend, transactions would be: Retained earnings DR 1,800,000

cpk, in the post earlier, you said anyting < 20% are market value but in 2 posts above, you said anything < 5% are market value? which one is correct? And just to make sure, the \$100 you guys are subtracting, it is the market value of stock dividends that you’re subtracting instead of the excess proceeds? In other words: RE = \$880k (income) - \$260k (pref. div.) - \$100 (market value), right?

Why don’t the excess proceeds go into R/E?

bump… thanks

Retained earnings is basically the sum of cumulative net income less cumulative dividends. Whenever common stock is issued it has a par value (like \$1.00) that is pretty much always a lot below the sale price , and the proceeds are split between two lines: one is par times number of shares, and the other controbuted capital in excess of par.