Eddie Zambrano Corporation began operations on January 1, 2011. During its first 3 years of operations, Zambrano reported net income and declared dividends as follows. Net income Dividends declared 2011 $42,900 $ Solution Retained earnings on January 1, 2014 160,600 less: correction of depreciation error -26,200 less: decrease in income from change in inventory method -37,700 Retained earnings on January 1 , 2014 after adjustments 96,700 Add: Income before income tax for 2014 221,100 Less: 40% taxes on income before tax -88,440 Net income for 2014 132,660 Dividend declared -107,000 Retained earnings on december 31 = adjusted opening retained earnings+net income for 2014-dividend declared Retained earnings on December 31 122,360 .