Northwood Architects Ltd. Is a private company reporting under ASPE. It is authorized to issue an unlimited number of common and $3 cumulative preferred shares. The following is an alphabetical list of its adjusted accounts at March 31, 2024, its fiscal year end. All accounts have normal balances.

Accounts payable$21,350Income tax expense$16,535Accounts receivable38,700Insurance expense6,550Accumulated depreciation--equipment23,650Interest expense3,000Cash54,600Notes payable50,000Cash dividendscommon40,000Preferred shares56,250Cash dividendspreferred4,500Prepaid expenses6,150Common shares75,000Rent expense35,800Consulting revenue404,500Retained earnings64,800Depreciation expense11,825Salaries expense245,400Dividends payable15,000Salaries payable2,310Equipment224,000Supplies expense25,800

There are 1,500 preferred and 75,000 common shares issued.

Instructions

Prepare the statement of retained earnings, and the shareholders equity section of the balance sheet.

Calculate return on Equity. Note: No shares were issued during the year.

Why is it important that retained earnings be tracked and presented separately from share capital in the balance sheet?