At December 31, Year 1, Eagle Corp. reported $1,750,000 of appropriated retained earnings for the
construction of a new office building, which was completed in Year 2 at a total cost of $1,500,000.
In Year 2, Eagle appropriated $1,200,000 of retained earnings for the construction of a new plant.
Also, $2,000,000 of cash was restricted for the retirement of bonds due in Year 3. In its Year 2
balance sheet, Eagle should report what amount of appropriated retained earnings?
a. $1,200,000 b. $1,450,000 c. $2,950,000 d. $3,200,000
Rule: When the purpose of the appropriation has been achieved, it should be restored to
unappropriated retained earnings.
Choice "a" is correct. $1,200,000 appropriated retained earnings at Dec. 31, Year 2 (for the
construction of a
new plant only).
Choices "b" and "c" are incorrect. When the new ($1,500,000) office building was completed in Year
$1,750,000 was restored to unappropriated retained earnings.
Choice "d" is incorrect. "Cash restricted for the retirement of bonds" (an asset account called
cash") typically reduces regular cash and does not affect retained earnings. (There may also be an
appropriation, but this would have to be specifically mentioned in the question.)