Final answer:
Mr. Husker's Tuxedos ended the year with a retained earnings balance of $295 million, calculated by adding their net income to the starting balance and then subtracting the dividends paid to preferred and common stockholders.
Step-by-step explanation:
The year-end balance in retained earnings for Mr. Husker's Tuxedos Corporation would be $295 million. To calculate this balance, we begin with the starting retained earnings of $274 million, add the net income of $42 million, and then subtract the total dividends paid to both preferred and common stockholders, which are $9 million and $12 million respectively.
Mr. Husker's Tuxedos ended the year with $295 million in retained earnings. This is calculated by adding net income to the initial retained earnings and subtracting dividends paid.
Retained earnings represent the cumulative amount of net income that a company retains, rather than distributing it to shareholders in the form of dividends. The calculation starts with the beginning retained earnings balance, which reflects earnings that have been retained in the company from previous periods.
Over the current period, the company generates net income, which increases its retained earnings. However, when a company pays out dividends, it represents a distribution of profits to shareholders, which in turn reduces the retained earnings balance. The preferred dividends are often paid before common dividends and can be a fixed amount as agreed upon. The common dividends are distributed to the common stockholders and can be variable. Both these dividends are then subtracted from the retained earnings to arrive at the year-end balance. In the given scenario, Mr. Husker's Tuxedos Corporation has managed its profits and distributions, resulting in the final retained earnings balance of $295 million.