Question

Salem instruments had retained earnings of $390,000 at December 31,2015. Net income for 2016 totaled $200,000 and dividends for 2016 were $50,000. How much retained earnings should Salem report at December 31, 2016?

Answer 1

To calculate Salem Instruments' retained earnings at the end of 2016, you add the net income for 2016 to the beginning retained earnings and subtract the dividends paid. The calculation is $390,000 + $200,000 - $50,000, resulting in retained earnings of $540,000.

Step-by-step explanation:

The question asks about calculating the retained earnings at the end of 2016 for Salem Instruments. To do this, we need to adjust the retained earnings at the beginning of 2016 by adding the net income for the year and then subtracting any dividends paid out.

The calculation would be as follows: Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings.

In numbers, it will be $390,000 (beginning retained earnings) + $200,000 (net income) - $50,000 (dividends) = $540,000 (ending retained earnings).

Therefore, Salem Instruments should report retained earnings of $540,000 on December 31, 2016.