Question

A company had the following sequential transactions during the year:

1) Issued 1,000 shares of $2 par value stock for $12 per share.
2) Repurchased 100 shares of stock at $10 per share.
3) Paid dividends of $1 per share.
4) Had $1,500 in net income.
What is the balance in retained earnings at the end of the year?
O $600
O Cannot be determined with the information provided.
O $1,500
O $500

Answer 1

The balance in retained earnings at the end of the year is $10,500.

Step-by-step explanation:

In order to calculate the balance in retained earnings, we need to consider the different transactions that occurred during the year:

1. The issuance of 1,000 shares of $2 par value stock for $12 per share results in a total increase in retained earnings of $10,000 ($12 per share - $2 par value per share) x 1,000 shares.
2. The repurchase of 100 shares of stock at $10 per share does not impact the retained earnings as the shares are being retired.
3. The payment of dividends of $1 per share results in a decrease in retained earnings of $1,000 ($1 per share x 1,000 shares).
4. The net income of $1,500 increases the retained earnings by $1,500.

Therefore, the balance in retained earnings at the end of the year is $10,500 ($10,000 + $1,500 - $1,000).