Question

A company had a beginning balance in retained earnings of $44,300. It had net income of $7,300 and paid out cash dividends of $5,950 in the current period. The ending balance in retained earnings equals:

Answer 1

Answer:

$45,650

Explanation:

a) Calculations of Retained Earnings:

Beginning balance = $44,300

Net Income =                 7,300

less Dividends             -5,950

Ending balance =     $45,650

b) A statement of changes in Retained Earnings is always prepared to include the net income available for distribution to stockholders and exclude the distributions already made to stockholders in the form of dividends before arriving at the ending balance of Retained Earnings.  This later figure is reported in the Balance Sheet.  This process is also part of the closing entries of temporary accounts to permanent accounts at the end of an accounting period.