Question

During its first year of operations, beginning August 1, 20Y5, Lazy Day Chairs produced net income of 2,300 and paid 750 in dividends. Prepare the retained earnings statement if the company has a calendar year-end.

Answer 1

To prepare the retained earnings statement, start with the beginning balance, add net income, and subtract dividends paid. In this case, the ending retained earnings balance is $208.33.

Step-by-step explanation:

To prepare the retained earnings statement, you need to start with the beginning retained earnings balance, add the net income for the year, and subtract the dividends paid out. In this case, the company's first year of operations was from August 1, 20Y5 to December 31, 20Y5, a period of 5 months. To calculate the net income for the year, you can divide the net income for 5 months by 12 and multiply it by 5. The retained earnings statement would look like this:

Retained Earnings Statement

Beginning retained earnings balance: $0

Net income for 5 months: $2,300 * (5/12) = $958.33

Less dividends paid: $750

Ending retained earnings balance: $958.33 - $750 = $208.33