Lee Corporation Equity Scenario
Corporation is an American company that began operations on January 1, 2004. It has just completed its fourth full year of
operations on December 31, 2007. Ending
Year Balances for the prior year that ended on December 2006 were as follows:
Earnings: $ 225,000
Common Stock at
par: $ 500,000
Paid-in Capital: $1,000,000
Treasury Stock: $ 200,000
before taxes for 2007 totaled $240,000
Tax Rate was 40% for all years of operation including 2007
following information relates to 2007:
1. An error was discovered during 2007. Specifically, depreciation expense was
understated in 2005 resulting in the need for a Prior Period Adjustment of
$25,000 before taxes.
2. Lee Corporation changed its method of
valuing inventory during 2007. The cumulative
decrease in income from the change in inventory methods was $35,000 before
3. Lee Corporation declared cash dividends
of $100,000 in late 2007 to be paid out in 2008.
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 .x-rates.com”>www.x-rates.com and use the historic lookup
feature to determine the exact exchange rates on 12/31/04, 12/31/05, and
Prepare journal entries for items 1 to 3 above.
Calculate and journalize the foreign exchange adjustments for 2005, 2006
and 2007 for the Canadian subsidiary.
3. Prepare a Retained Earnings Statement for
the year ended December 31, 2007.
4. Prepare a Statement of Changes in
Stockholders Equity for the year ended December 31,