Question

Skysong, Inc. began the year 2022 with retained earnings of $670000. During the year, the company sold additional shares of stock for $1005000, recorded revenues of $633000, expenses of $385000, and paid dividends of $131000. What was Skysong's retained earnings balance at the end of 2022?

Answer 1

Answer:

$787,000.

Explanation:

Skysong, Inc. generated a profit of $248,000 (633,000 - 385,000) during the year 2022. This amount has a credit balance in income statement, closing it would require a debit to it and a credit entry to match the debit is made to Retained Earnings account which is an item of Statement of Owners' Equity. Statement of Owners' Equity is a report that represents the Equity section of balance and accounts for any changes in the owners' equity during a period. The items included in this statement are Capital, Paid-up Capital, Retained Earnings, and Drawings. To calculate the ending balance of Skysong's retained earnings, we have to prepare a statement of owners' equity.

                                    Statement of Owners' Equity

                                           Capital                           Retained Earnings        

Opening Balance                  -                                          $670,000

Additional Stock             $1,005,000

Profit for the Year                                                               248,000

Dividends Paid                                                                   (131,000)

Closing Balance             $1,005,000                                787,000

⇒ Skysong's retained earnings will be reported at $787,000 at the end of 2022.