Question

Required Information E1-4 Completing a Balance Sheet and Inferring Net Income [LO 1-2, LO 1-3) The following information applies to the questions displayed below.] Ken Young and Kim Sherwood organized Reader Direct as a corporation: each contributed $49,000 cash to start the business and received 4,000 shares of stock. The store completed its first year of operations on December 31, 2017. On that date, the following financial items for the year were determined: cash on hand and in the bank. $47.500, amounts due from customers from sales of books, $26.900: equipment, $48.000; amounts owed to publishers for books purchased, $8.000: one-year notes payable to a local bank for $2.850. No dividends were declared or paid to the stockholders during the year. E1-4 Part 4 4. Assuming that Reader Direct generates net income of $3,000 and pays dividends of $2.000 in 2018, what would be the ending Retained Earnings balance at December 31, 2018?

Answer 1

Answer

Ending Retained Earnings	=	Beginning Retained Earnings	+	Net Income	-	Dividends
$                               14,550	=	$                                      13,550	+	3000	-	2000

Calculations of Beginning Retained Earnings

Total Assets
Cash	$ 47,500
Accounts Receivable	$ 26,900
Equipment	$ 48,000
Total Assets		$ 122,400
Liabilities:
Accounts Payable	$   8,000
Notes Payable	$   2,850
Total Liabilities (b)		$   10,850
Total capital (Assets - Liabilities)		$ 111,550
Paid in Capital (49,000 * 2)		$   98,000
Retained Earnings (Total capital - paid in capital)		$   13,550

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