Question

The Don't Tread on Me Tire Company had retained earnings at December 31, 2015 of $217,000. During 2016, the company had revenues of $417,000 and expenses of $358,500, and the company declared and paid dividends of $12,700. Retained earnings on the balance sheet as of December 31, 2016 will be_____________.
a. $275,500.
b. $45,800.
c. $262,800.
d. $321,300

Answer 1

Given:

Beginning retained earnings = $217,000

Revenues = $417,000

Expenses = $358,500

Dividends = $12,700

To find:

Ending retained earnings

Solution:

To calculate the ending retained earnings first we have to calculate the net income of the company. The formula to calculate the net income is as follows,

$\bold{\text{Net income = Revenues - Expenses}}$

On plugging in the values in the above formula we get,

$\Rightarrow \ 417,000 - \ 358,500 = \ 58,500$

The formula to calculate the ending retained earnings is as follows,

$\bold{\text{Ending retained earnings = Beginning retained earnings + Net income - Dividends}}$

$\Rightarrow \ 217,000 + \ 58,500 - \ 12,700 = \ 262,800$

Therefore, the retained earnings on the balance sheet as of December 31, 2016 will be $262,800 that is option c.