Final answer:
To calculate the balance of the retained earnings account at December 31, Year 2, you need the beginning retained earnings, net income, and dividends. Use the formula Retained Earnings = Beginning Retained Earnings + Net Income - Dividends.
Step-by-step explanation:
The balance of the retained earnings account at December 31, Year 2 can be calculated using the following formula:
Retained Earnings = Beginning Retained Earnings + Net Income - Dividends
The beginning retained earnings can be found in the owner's equity section of the balance sheet for the previous year. Net income is the profit earned during the year and can be calculated by subtracting expenses from revenues. Dividends are the amount of profit distributed to shareholders.
Once you have these values, you can add or subtract them to determine the balance of the retained earnings account at December 31, Year 2.