Question

Scott lockhart owns and operates aaa delivery services. on january 1, 20y7, common stock had a balance of $40,000, and retained earnings had a balance of $815,500. during the year, no additional common stock was issued, and $10,000 of dividends were paid. for the year ended december 31, 20y7, aaa delivery reported a net income of $67,250. a) Ending Common Stock balance of $40,000

b) Ending Retained Earnings balance of $725,500
c) Net Income of $77,250
d) Dividends paid of $20,000

Answer 1

The ending balance of Common Stock remains at $40,000 since no additional stock was issued. The Retained Earnings balance at the end of 20y7 is $872,750, calculated by adding the net income for the year to the initial Retained Earnings balance and subtracting the dividends paid.

Step-by-step explanation:

The question pertains to adjusting the retained earnings and common stock balances of AAA Delivery Services based on the activities of the year 20y7. The available information includes the initial balances of common stock and retained earnings, the net income generated during the year, and the dividends paid. To calculate the ending Retained Earnings balance, we start with the initial balance and add the net income for the year, then subtract the dividends paid.

Calculation of Ending Retained Earnings Balance

Initial Retained Earnings: $815,500
Net Income: $67,250
Dividends Paid: $10,000
Ending Retained Earnings = Initial Retained Earnings + Net Income - Dividends Paid
Ending Retained Earnings = $815,500 + $67,250 - $10,000
Ending Retained Earnings = $872,750

Note that the Common Stock balance does not change since no additional stock was issued, hence it remains $40,000.