Question

Aggie Corporation began operations on January 1, 2017, with an investment of $25,000 by each of its two stockholders. Net income for its first year of business was $29,000. During 2018 and 2019, net income increased to $35,000 and to $46,000 respectively. Aggie paid $3,000 in dividends to each of the two stockholders in each of the three years. During 2019, the owners invested an additional $5,000 each into the business.

Determine the amount of Aggie's retained earnings at December 31, 2019.

a. $122,000
b. $92,000
c. $102,000
d. $152,000

Answer 1

Aggie's retained earnings at December 31, 2019, are calculated by adding the total net income for three years, subtracting the total dividends paid, and adding any additional investments by the owners, resulting in $102,000.

Step-by-step explanation:

The amount of Aggie's retained earnings at December 31, 2019, can be calculated by adding the total net income over the three years and then subtracting the dividends paid to the stockholders over the same period. Additionally, we must account for any additional investments made by the owners.

• Total net income (2017 + 2018 + 2019): $29,000 + $35,000 + $46,000 = $110,000
• Total dividends paid (3 years × $3,000 × 2 stockholders): 3 × $3,000 × 2 = $18,000
• Additional investment by owners in 2019: 2 × $5,000 = $10,000

To find the retained earnings at the end of 2019, we subtract the total dividends paid from the total net income and add the additional investment:

$110,000 (Total net income) - $18,000 (Total dividends) + $10,000 (Additional investment) = $102,000

Therefore, the amount of Aggie's retained earnings at December 31, 2019, is $102,000.