Question

Assume the Net Income was actually a Net Loss of $19,000, Expense were $67,200, Beginning Retained Earnings was $88,000, and Ending Retained Earnings was unknown. Which of the following amounts will change?

• Ending Retained Earnings only

• Revenues and Common Stock

• Ending Retained Earnings and Common Stock

• Ending Retained Earnings and Revenue

Answer 1

"Net Loss of $19,000, Expense were $67,200, Beginning Retained Earnings was $88,000." The amounts that will change will be

• Ending Retained Earnings and Revenue

As Net loss is excess of expense over revenue. Hence, revenue will be $48,200($67,200-$19,000).

Ending Retained Earnings will be Beginning Retained Earnings plus Net income(Net loss) minus any dividend paid. Ending Retained Earning will be $69,000($88,000-$19,000). Hence, the amounts that will change will be Ending Retained Earnings and Revenue.

Common stock will not change as Common stock changes if Opening Stock, Purchases or Sales changes. Common stock will have no effect with change in Net loss and Expenses.