Question

During its first five years of operations, a company reports net income and pays dividends as follows. Required: Calculate the balance of retained earnings at the end of each year. Note that retained earnings will always equal $0 at the beginning of year 1.

Answer 1

Answers:

Years:

1. $700
2. $1,900
3. $3,000
4. $5,200
5. $8,600

Step-by-step explanation:

Retained earnings for the year is:

= Beginning retained earnings + Net income - Dividends

Year 1

= 0 + 1,200 - 500

= $700

Year 2

= 700 + 1,700 - 500

= $1,900

Year 3

= 1,900 + 2,100 - 1,000

= $3,000

Year 4

= 3,000 + 3,200 - 1,000

= $5,200

Year 5

= 5,200 + 4,400 - 1,000

= $8,600