Stockholders' equity of Empowerment Inc. as of December 31, 2018, is as follows: Common stock, par value $2; authorized 20,000 shares; issued and outstanding 10,000 shares $ 20,000 Paid-in capital in excess of par 30,000 Retained earnings 85,000 $135,000 On May 1, 2018, the BOD declared a 15% stock dividend, and accordingly 1,500 additional shares were issued. On May 1, 2018, the fair value of the stock was $6 per share. For the 4 months ended April 30, 2018, Empowerment reported a $15,000 net loss. What amount should Empowerment report as retained earnings as of May 1, 2018

Empowerment Inc.

The amount that Empowerment Inc should report as Retained Earnings as of May 1, 2018 is $67,000.

Explanation:

a) Statement of Retained Earnings:

Retained earnings, January 1      $85,000

Net loss                                          (15,000)

Stock dividend                                (3,000)

Retained earnings, May 1, 2018 $67,000

b) Empowerment Inc. paid a stock dividend of 1,500; thus this additional shares will be valued at $3,000 (1,500 * $2) since the par value is $2.  This will increase the Common stock shares outstanding to 11,500 shares to a value of $23,000.  The additional $3,000 represents the value of the stock dividend, which reduces the balance of the Retained Earnings.

In addition, Empowerment Inc. incurred a net loss of $15,000.  This amount reduces the Retained Earnings.

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