Lee Corporation Scenario

In: Business and Management

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Individual Assignment: Lee Corporation Equity Scenario  Review the following information: o Lee Corporation, a U.S. company, began operations on January 1, 2004. o During its first 3 years of operations, Lee reported net income and declared dividends as follows: | Net income | Dividends declared | 2004 | $ 40,000 | $ –0– | 2005 | 125,000 | 50,000 | 2006 | 160,000 | 50,000 | o The following information relates to 2007:  Income before income tax: $240,000
 Prior period adjustment: understatement of 2005 depreciation expense (before taxes): $ 25,000
 Cumulative decrease in income from change in inventory methods (before taxes): $35,000
 Dividends declared (of this amount, $25,000 will be paid on January 15, 2008): $100,000
 Effective tax rate: 40%

Lee Corporation | Retained Earnings Statement | For the Year Ended December 31, 2007 | Balance, January 1, as reported | $225,000* | | Correction for depreciation error (net of $10,000 tax) | (15,000) | | Cumulative decrease in income from change in inventory methods (net of $14,000 tax) | (21,000) | | Balance, January 1, as adjusted | 189,000 | | Add: Net income | 144,000** | | | 333,000 | | Less: Dividends declared | 100,000 | | Balance, December 31 | $233,000 | | *($40,000 + $125,000 + $160,000) – ($50,000 + $50,000)
**[$240,000 – (40% X $240,000)] Common stock | $500 | Treasury stock | (-$200) | Additional paid-in principle | $1000 | Shares outstanding | 375,940 | Shares authorized | 500,000 | Shares in treasury | 30,000 | o Lee acquired a Canadian subsidiary whose sole asset is a piece of land. Lee acquired the subsidiary on 12/31/04 for the exact value of the land, CA$100,000. Lee owns 100% of the subsidiary. Go to…...

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