Question

The year-end financial statements of Calloway Company contained the following elements and corresponding amounts: Assets = $28,000; Liabilities = ?; Common stock = $5,800; Revenue = $12,600; Dividends = $1,150; Beginning retained earnings = $4,150; Ending retained earnings = $7,800. Based on this information, the amount of expenses on Calloway's income statement was_______

A. $4,150
B. $8,000
C. $3,950
D. $7,950

Answer 1

The expenses on Calloway's income statement are $7,800. This is calculated using the changes in retained earnings, dividends declared, and total revenue for the period.

Step-by-step explanation:

The student asked what the amount of expenses was on Calloway's income statement, given the data provided. To calculate the expenses, we use the formula for ending retained earnings: Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings. First, we find the Net Income, which is Revenue minus Expenses. We know the Revenue ($12,600) and can calculate Net Income using the Beginning ($4,150) and Ending Retained Earnings ($7,800) along with Dividends ($1,150). Net Income comes out to be $4,800 ($7,800 ending retained earnings - $4,150 beginning retained earnings + $1,150 dividends). Therefore, the Expenses are $7,800 ($12,600 revenue - $4,800 net income).