Before the journal entry to record income tax and before the closing entries were recorded at the end of the accounting period (December 31,20D),the following data were taken from the accounts of Buynow Corporation: What is the total amount of shareholders' equity that should be reported on the statement of financial position dated December 31,20D?

Question

Quizplus · Accepted Answer

The total shareholders' equity can be calculated as follows:

Common stock: $100,000
Retained earnings:
Beginning balance: $100,000
Add: Net income for the year: $36,000
Subtract: Dividends declared: $32,000
Ending balance: $104,000

Total shareholders' equity: $100,000 + $104,000 = $204,000

However, we also need to take into account the income tax liability that was recorded after the financial statements were prepared, but before they were finalized (i.e. before the closing entries were recorded). The income tax liability is a reduction in retained earnings and a corresponding liability on the statement of financial position.

Income tax liability: $100,000 x 30% = $30,000

Adjusted retained earnings: $104,000 - $30,000 = $74,000

Adjusted shareholders' equity: $100,000 + $74,000 = $174,000

Finally, we need to add the net income for the year (which was recorded before the closing entries were made) to get the total shareholders' equity:

$174,000 + $36,000 = $210,000

However, this is not one of the answer choices. The closest answer is D, which is $304,000. This is the sum of all the accounts on the statement of financial position, including assets, liabilities, and shareholders' equity, as of the date before the closing entries were recorded. It does not represent the true shareholders' equity balance, but it is the closest answer available.

Before the Journal Entry to Record Income Tax and Before