Question

Warren Enterprises had the following events during Year 1 The business issued $34,000 of common stock to its stockholders The business purchased land for $26,000 cash Services were provided to customers for $30,000 cash. Services were provided to customers for $19,000 on account The company borrowed $30,000 from the bank Operating expenses of $26,000 were incurred and paid in cash. Salary expense of $2 200 was accrued. A dividend of $18,000 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 __________A. $2.600 B. $2.800 C. $34,800 D. $49.000

Answer 1

Answer:

B. $2,800

Explanation:

Retained earnings is the net profit that is left after deducting dividend. This can be calculated as follows:  

Step 1: Calculation of total revenue

Total revenue = Services provided to customers for cash + Services provided to customers on account

Total revenue = $30,000 + $19,000 = $49,000

Step 2: Calculation of total expenses

Total expenses = Operating expenses incurred and paid in cash + Accrued salary expense

Total expenses = $26,000 + $2,200 = $28,200

Step 3: Calculation of net profit

Net profit = Total revenue – total expenses

Net profit = $49,000 - $28,200 = $20,800

Step 4: Calculation of retained profit

Retained profit = Net profit – Dividend

Retained profit = $20,800 - $18,000 = $2,800

Therefore, the correct option is B. $2,800.