Final answer:
Crawford Company's retained earnings at the end of the year would be $61,000. This is calculated by adding the net income of $44,000 to the initial retained earnings balance of $20,000, then subtracting the $3,000 in dividends paid.
Step-by-step explanation:
The question deals with the computation of retained earnings at the end of the year for Crawford Company. The company began with an initial balance of $20,000 in retained earnings. Over the year, the company earned net income of $44,000 and distributed dividends of $3,000. The retained earnings are affected by both the net income, which increases retained earnings, and dividends, which decrease retained earnings.
To calculate the retained earnings at year-end, we use the following formula:
Start with the beginning retained earnings balance ($20,000).
Add the net income for the period ($44,000).
Subtract the dividends paid out during the period ($3,000).
Therefore, the calculation is:
$20,000 (beginning balance) + $44,000 (net income) - $3,000 (dividends) = $61,000 (ending retained earnings balance).
It's important to note that the sale of additional common stock does not impact retained earnings but instead affects the equity section of the balance sheet related to share capital.