Question

Lexington Company engaged in the following transactions during Year 1, its first year in operation: (Assume all transactions are cash transactions.) Acquired $3,200 cash from issuing common stock. Borrowed $2,300 from a bank. Earned $3,200 of revenues. Incurred $2,420 in expenses. Paid dividends of $420. Lexington Company engaged in the following transactions during Year 2: (Assume all transactions are cash transactions.) Acquired an additional $600 cash from the issue of common stock. Repaid $1,370 of its debt to the bank. Earned revenues, $4,600. Incurred expenses of $2,790. Paid dividends of $760. What was the amount of retained earnings that will be reported on Lexington's balance sheet at the end of Year 1?

Answer 1

Retained Earnings Balance at end of Year 1 = $360

Step-by-step explanation:

First we need to determine the profit/loss for the year as part of the retained earnings calculation.

Lexington Company

Income Statement for the year ended - Year 1

Revenue Earned $3,200

Less Expenses ($2,420)

Net Income / (Loss) $780

Then we calculate the Retained Earnings Balance

Retained Earnings Statement

Beginning Retained Earnings Balance $ 0

Add Profit earned during the year $780

Less Dividends ($420)

Ending Retained Earnings Balance $360