Question

ABC had a net income of $8,000, $5,000, $12,000, and $10,000 over the first four years of the company's existence. If the average annual amount of dividends paid over the last four years is $3,000, what is the ending retained earnings balance?

Answer 1

$23000.

Step-by-step explanation:

Given:

ABC had a net income of $8,000, $5,000, $12,000, and $10,000 over the first four years of the company's existence.

The average annual amount of dividends paid over the last four years is $3,000.

Question asked:

What is the ending retained earnings balance?

Solution:

First of all we will calculate total dividends paid during four years:-

Average annual amount of dividends = $3,000

Total number of years = 4

As we know:

`Average =(Sum \ of\ observations)/(Number\ of\ observation)`

`3000=(Sum\ of\ observations)/(4) \\`

Multiplying both sides by 4

`3000*4=(Sum\ of\ observations)/(4) *4\\ \\ 12000=Sum\ of\ observations`

That means, ABC paid $12,000 dividends over the last four years.

Now, Net income = 8000 + 5000 + 12000 + 10000 = $35000

Ending retained earnings balance = Net income - Dividend paid

= $35000 - $12,000

= $23000

Therefore, the ending retained earnings balance of ABC is $23000.