Question

A corporation has a $500,000 beginning balance in retained earnings. its net income for the year was $200,000. sales revenue amounted to $1,000,000, and dividends declared and paid by year-end amounted to $100,000. what was the ending balance in retained earnings?

Answer 1

Given:
$500,000 beg. balance in retained earnings.
$200,000 net income for the year
$1,000,000 sales revenue
$100,000 dividends declared and paid by year-end

Retained earning is the amount left from net income after dividends have been paid. In the given data, sales revenue is not included in the Retained earnings report. It is reflected in the Income statement which generates the Net income.

Retained Earnings, beg. balance 500,000
Add: Net Income for the year 200,000
Total 700,000
Less: Dividends declared and paid this year (100,000)
Retained Earnings, end balance 600,000