Question

At the end of Year 2, retained earnings for the Baker Company was $3,050. Revenue earned by the company in Year 2 was $3,300, expenses paid during the period were $1,750, and dividends paid during the period were $1,150. Based on this information alone, what was the amount of retained earnings at the beginning of Year 2?

Answer 1

$2,650

Explanation:

For computation of retained earnings at the beginning of Year 2 first we need to find out the net profit which is shown below:-

Net profit = Revenue - Expenses

= $3,300 - $1,750

= $1,550

Retained earnings at the ending of Year 2 = Beginning balance of retained earning + Net profit - Dividend paid

$3,050 = Beginning balance of retained earning + $1,550 - $1,150

Beginning balance of retained earning = $3,050 - $400

= $2,650