Question

If Retained Earnings had instead decreased $33,000 after the closing entries were posted, and the dividends remained the same, what would have been the amount of net income or net loss? Please help me solve this with step-by-step instructions.

Information from the Retained Earnings Statement:

Retained Earnings, Dec. 1, 2017    $293,400

Net income $108,900

Dividends 11,700

Change in retained earnings $97,200

Retained earnings, Nov. 30, 2018    $390,600

Answer 1

Revised situation Existing situation Retained earnings Beginning bal. Retained earnings Beginning bal. $293,400 $108,900 $293,400 Net income Dividends $11,700 $11,700 $21,300 $260,400 $293,400 Dividends Net income(loss) $390,600 $402,300 Ending bal. Ending bal. $402,300 $293,400 Ending bal. $390,600 $260,400 Ending bal. Steps to be followed for EXISTING SITUATOIN (i) First prepare the retained earnings T account. Put opening and closing balances as per rules. Put opening balance as credit and ending balance as debit. (ii) Dividends decrease the retained the retained earnings hence, it will be written on the debit side(left) side of the T-account. (iii) Net income increases in the retained earnings hence, it will be credited in retained earnings(credit) Steps to be followed for REVISED SITUATION (i) Under revised situation beginning bal. is given as $293,400 and ending balance is decreased by $33,000 hence, ending balance is 260,400. (ii) Divindends will be entered in debit(left) side as it is as $11,700. (iii) To balance the account we calculate balancing figure of $21,300 on the debit side. It is net loss.

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