Question

For the year ended December 31, 2020, Transformers Inc. reported the following: Net income $300,000 Preferred dividends declared 50,000 Common dividend declared 10,000 Unrealized holding loss, net of tax 5,000 Retained earnings, beginning balance 400,000 Common stock 200,000 Accumulated Other Comprehensive Income, Beginning Balance 25,000.
What would Transformers report as the ending balance of Retained Earnings? Select one:

a. $695,000
b. $645,000
c. $665,000
d. $640,000

Answer 1

Answer:

d. $640,000

Explanation:

The computation of ending balance of Retained Earnings is shown below:-

Ending balance of Retained Earnings = Beginning balance + Net income - Preferred dividends declared - Common dividends declared

= $400,000 + $300,000 - $50,000 - $10,000

= $700,000 - $60,000

= $640,000

Therefore for computing the ending balance of Retained Earnings we simply applied the above formula.