Restrictions
Response to the following problem:
Perry Company has a retained earnings balance of $400,000 at the end of 2010. During 2010, it had issued $100,000 of five-year, 12%, long-term bonds. The bond provisions require that each year over the five-year period an additional $20,000 of retained earnings be unavailable for dividends. This restriction is in addition to any other retained earnings restrictions that the company might make. At the end of 2010, Perry Company held treasury stock costing $15,000.
Required:
Show how Perry Company would report its retained earnings in its 2010 financial statements. Include a note to the financial statements fully describing the restrictions.