Answer:
Correct answer is $1,050 balance in retained earnings on the year 2 balance sheet
Explanation:
Retained earnings has a beginning amount of $1,000, then we incurred $1,700 revenue less the expense incurred in rent in the amount of $1,350 (1,800 / 12 months x 9 months). Then the company paid $300 dividends fro the year that is a deduction to the retained earnings balance.
Retained earnings beginning, $1,000
Add: Revenue 1,700
<u>Less: Rent expense (expired portion) 1,350</u>
Total $1,350
<u>Less : Dividends 300</u>
Total ending balance of retained earnings $1,050
*Prepaid rent balance at the end of year 2 is $450 ($1,800 - ($1,800 / 12 months x 9 months)
*Cash outflow from operating is not $1,700 because it is an inflow of cash from the revenue
