Question

Required information (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, $44,500; amounts due from customers from sales of books, $27,900, equipment, $48,000, amounts owed to publishers for books purchased, $8.400, one year notes payable to a local bank for $4,350. No dividends were declared or paid to the stockholders during the year. 4. Assuming that Reader Direct generates net income of $8,000 and pays dividends of $3,000 in 2018, what would be the ending Retained Earnings balance at December 31, 2018? - -

Answer 1

Ans 4.

Ending Retained Earnings = Beginning Retained Earnings + Net Income - Dividends

To calculate Ending Retained Earnings first we have to calculate Retained Earnings as on Dec 31,2017

Total Assets as on Dec 31,2017
Cash on hand and Bank	$        44,500.00
Accounts Receivable	$        27,900.00
Equipment	$        48,000.00
Total Assets as on Dec 31,2017 (a)		$ 120,400.00
Less:
Liabilities:
Accounts Payable	$          8,400.00
Notes Payable	$          4,350.00
Total Liabilities (b)		$    12,750.00
Less: Paid in Capital (49,000 * 2) (c)		$    98,000.00
Retained Earnings as on Dec 31,2017 (d = a-b-c)		$      9,650.00

Note : At the time of starting the business, each contributed $49,000 which came to a total of $ 98,000 as common stock.

Now, Calculation of Ending Retained Earnings as follows:

Particulars	Amount
Beginning balance of Retained earnings as on Jan 1,2018	$          9,650.00
Add : Net Income for 2018	$          8,000.00
Less : Dividend Paid	$          3,000.00
Ending balance of Retained earnings as on Dec 31,2018	$        14,650.00

Ending Retained Earnings	=	Beginning Retained Earnings	+	Net Income	-	Dividends
$                               14,650.00	=	$                                        9,650.00	+	$        8,000.00	-	$          3,000.00