Question

Allen's Roofing posts $5,000 in net income and $200 in dividends for the year. How does this affect the retained earnings on the balance sheet? SELECT ONLY ONE Retained earnings increases by $4,800 Retained earnings increases by $5,000 Retained earnings increases by $5,200 Retained earnings decreases by $4,800 Retained earnings decreases by $5,000

Answer 1

Retained earnings increases by $4,800

Explanation:

Net income increases retained earnings, while distributed dividends decrease retained earnings. Retained earnings is simply the amount of net income left after distributing dividends.

The net change in retained earnings = net income - distributed dividends = $5,000 - $200 = $4,800 increase

Answer 2

"Retained earnings increases by $4,800"

Explanation:

Retained Earnings are the amount of money left over for a business after it has paid its dividends from its net income.

Simply put:

Retained Earnings = Income - Dividends

Here, it is given:

Income = 5000

Dividends = 200

Hence,

Retained Earnings = 5000 - 200 = $4800