Question

On December 31, 2013, the balance in retained earnings is $20,000. On December 31, 2014, the balance in retained earnings is $19,100. During 2014, dividends of $4,000 were declared and paid. What is the amount of net income for 2014?

Answer 1

To calculate the net income for 2014, we add the dividends declared and paid to the ending balance of retained earnings, then subtract the beginning balance of retained earnings. The net income for 2014 is calculated to be $3,100.

Step-by-step explanation:

The amount of net income for 2014 can be calculated by analyzing the changes in the retained earnings balance, taking into account the dividends declared and paid during the year. We start with the ending balance in retained earnings for 2014, which is $19,100, and then we add back the dividends paid during the year, which amount to $4,000, to find out what the retained earnings would have been without the dividends. This gives us $23,100. From this adjusted balance, we subtract the beginning balance of retained earnings, which was $20,000, to arrive at the net income for 2014. Therefore, the net income for the year 2014 is $3,100. Here is the calculation:

Adjusted retained earnings (2014): $19,100 + $4,000 = $23,100

Net income: $23,100 - $20,000 = $3,100