Question

During its first month of operations, Ava Corporation provided $91,952 of services to their customers. Ava’s costs included rent of $12,867 and salaries and wages totaling $16,337. At the end of the month, the board of directors approved a dividend of $1,457. What is the Retained Earnings for Ava Company at the end of the month?

Answer 1

Solution:

There are 2 possible ways to present the answer.

1) Board of directors approved dividend, which means dividend is declared but not paid.

2) Board of directors approved dividend, which means dividend is declared and paid.

Retained Earnings for Ava Company at end of month:

1) Board of directors approved dividend, which means dividend is declared but not paid.

Retained Earnings
Dividends	$              -	Beg Balance	$                     -
		Net Income	$           62,748
		End Balance	$           62,748

2) Board of directors approved dividend, which means dividend is declared and paid.

Retained Earnings
Dividends	$       1,457	Beg Balance	$                     -
		Net Income	$           62,748
		End Balance	$           61,291

Notes:.

1) Net Income = Revenue - Expenses = $ 91,952- $ 12,867- $ 16,337 = $ 62,748.