Question

Love Company’s accounting records show an after-closing balance of $20,100 in its Retained Earnings account on December 31, Year 2. During the Year 2 accounting cycle, Love earned $16,500 of revenue, incurred $9,900 of expense, and paid $2,200 of dividends. Revenues and expenses were recognized evenly throughout the accounting period.

Required
a. Determine the balance in the Retained Earnings account as of January 1, Year 3.
b. Determine the balance in the temporary accounts as of January 1, Year 2.
c. Determine the after-closing balance in the Retained Earnings account as of December 31, Year 1.
d. Determine the balance in the Retained Earnings account as of June 30, Year 2.

a. Balance in the retained earnings, January 1, Year 3 b. Balance in the temporary accounts, January 1, Year 2 c. Closing retained earnings, December 31, Year 1 d. Balance in the retained earnings, June 30, Year 2

Answer 1

a.	Balance in the retained earnings, January 1, Year 3	=	$       20,100
b.	Balance in temporary accounts, January 1, Year 2	=	0
c.	Closing retained earnings, December 31, Year 1	=	$       15,700
d.	Balance in the retained earnings, June 30, Year 2	=	$       15,700
	Workings:
a.	Closing balance of Year 2 = Opening balance of Year 3
b.	As balance already transferred from temporary account to permanent account. Therefore no closing balance, hence no beginning balance.
c.	Closing retained earnings = Opening Balance - Net Income + Dividend
	Closing retained earnings = $20100 - ($16500 - $9900) + 2200 = $15700
d.	Beginning balance is the last years closing balance and also no transaction takes place till June, hence same balance will continue