Monday, April 13, 2009

Retained Earnings Practice Problem

Calculate retained earnings accounting practice problem: 

A brand new company started its operations on January 2, 2010, with an initial investment of $50,000 by each of its two primary stockholders who were also involved in the management of the company.

The company's net income for its first year of business was $240,000. The company also paid a total of $100,000 in dividends to its stockholders during the year.

What is the company's retained earnings that will be reported on the balance sheet at December 31, 2010?

Accounting Answer:

Retained earnings equation = Net Income - Dividends

Retained Earnings = 240,000 - 100,000 = 140,000

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