Question

Warren Enterprises had the following events during Year 1: The business issued $21,000 of common stock to its stockholders. The business purchased land for $13,000 cash. Services were provided to customers for $17,000 cash. Services were provided to customers for $6,000 on account. The company borrowed $17,000 from the bank. Operating expenses of $13,000 were incurred and paid in cash. Salary expense of $900 was accrued. A dividend of $5,000 was paid to the stockholders of Warren Enterprises. Assuming the company began operations during Year 1, the amount of retained earnings as of December 31, Year 1 would be:

Answer 1

Answer:

$4,100

Explanation:

Equity which represents the amount owed to the owners of the business includes retained earnings (which is the accumulation of the net income/loss over the years less dividends paid) and common shares.

Net income is the difference between  the sales and the cost incurred by an entity.

hence the net income of Warren enterprises

= $17,000 + $6,000 - $13,000 - $900

= $9,100

The amount of retained earnings as at end of December 31, Year 1

= $9,100 - $5,000

= $4,100