Question

Retained earnings at the beginning and ending of the accounting period were $600 and $1,300, respectively. If revenues were $2,300 and dividends paid to stockholders were $500, expenses for the period must have been:

A. $500
B. $1,100
C. $900
D. $800

Answer 1

To find the expenses for the period, use the accounting equation involving retained earnings, revenues, expenses, and dividends. Calculate the net income by finding the change in retained earnings and adding dividends, then subtract net income from revenues to get the expenses, which are $1,100.

Step-by-step explanation:

To determine the expenses for the period, we can use the basic accounting equation which connects retained earnings, revenues, expenses, and dividends. The change in retained earnings is equal to net income minus dividends paid. Net income is calculated by subtracting expenses from revenues. The equation is as follows:

Ending Retained Earnings = Beginning Retained Earnings + Net Income - Dividends Paid

First, calculate the change in retained earnings:

Change in retained earnings = $1,300 - $600 = $700

Now, plug the change in retained earnings and the dividends into the equation and solve for net income:

$700 = Net Income - $500

Net Income = $700 + $500 = $1,200

Finally, determine the expenses by subtracting net income from revenues:

Expenses = Revenues - Net Income

Expenses = $2,300 - $1,200 = $1,100

Hence, the correct answer is B. $1,100.