Question

The first year of operations for a company was Year 1. The net income for Year 1 was $20,900 and dividends of $12,450 were paid. In Year 2, the company reported net income of $34,900 and paid dividends of $5,450. At the end of Year 1, the company had total assets of $159,000. At the end of Year 2, the company had total assets of $ $249,000. Use the information above to answer the following question. What is the amount of retained earnings at the end of Year 2?

A) $240,000.

B) $269,000.

C) $29,000.

D) $37,000.

Answer 1

The amount of retained earnings at the end of Year 2 is $37,900

Step-by-step explanation:

The amount of retained earnings is calculated by using following formula:

Amount of retained earnings = Net income - Dividends were paid

In Year 1, the Amount of retained earnings = $20,900 - $12,450 = $8,450

In Year 2, the Amount of retained earnings = $34,900 - $5,450 = $29,450

The amount of retained earnings at the end of Year 2 = Amount of retained earnings for year 1 + Amount of retained earnings for year 2 = $8,450 + $29,450= $37,900