Exercise 14-08 On January 1, 2020, Sandhill Corporation had retained earnings of $539,000. During the year, Sandhill had the following selected transactions. 1. Declared cash dividends $119,000. 2. Corrected overstatement of 2019 net income because of inventory error $39,500. 3. Earned net income $344,500. 4. Declared stock dividends $59,500. Determine the retained earnings balance at the end of the year.

$665,500

Explanation:

The computation of ending retained earning balance is shown below:

The ending retained earnings balance = Opening retained earning balance - cash dividend declared - overstatement of inventory error + net income - stock dividend declared

= $539,000 - $119,000 - $39,500 + $344,500 - $59,500

= $665,500

We simply added the net income and the rest of the items are deducted to find out the ending retained earning balance