Question

Tara Westmont, the stockholder of Tiptoe Shoes, Inc. had annual revenues of $203,000, expenses of $112,700, and the company paid $25,200 cash in dividends to the owner (sole stockholder). The retained earnings account before closing had a balance of $315,000. The ending retained earnings balance after closing is:

a. $203,000
b. $65,100
c. $90,300
d. $380,100
e. $405,300

Answer 1

The Ending balance = $380100. Thus option D is the correct answer.

Step-by-step explanation:

The net income of the company is used or utilized in two ways at the end of the year. It is either paid out as dividend or retained in the business and transferred to the retained earnings account or both. To calculate the ending balance of retained earnings account, we use the following equation,

Ending balance = Opening balance + Net Income - Cash Dividends

First we need to determine the net income for the year.

Net Income = Revenue - Expenses

Net Income = 203000 - 112700

Net Income = $90300

Ending balance of retained earnings account will be,

Ending balance = 315000 + 90300 - 25200

Ending balance = $380100