Taylor Manufacturing entered into a borrowing arrangement that requires the company to maintain a retained earnings balance
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Taylor Manufacturing entered into a borrowing arrangement that requires the company to maintain a retained earnings balance of $500,000. The company also wishes to finance internally a major plant addition in the not-too-distant future. Accordingly, the board of directors has decided to appropriate $350,000 of the retained earnings balance. Prior to the board’s action, the balance in the retained earnings account was $800,000.
(a) Why would the board of directors appropriate retained earnings in the situation described above, and why might an auditor insist that it be done?
(b) Show how retained earnings would be disclosed on the balance sheet after the appropriation.
(c) Discuss the constraints with respect to dividend payments that have been imposed on the board by the debt covenant and the appropriation.
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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a Appropriating retained earnings serves to restrict a portion of retained earnings from the payment ...View the full answer
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