Using the data needed, determine ending retained earnings. Beginning Retained Earnings $150,000 Dividends Paid $40,000 Net...

Using the data needed, determine ending retained earnings.

Beginning Retained Earnings $150,000

Dividends Paid $40,000

Net Loss ($10,000)

Total Assets $400,000

Current Liabilities $45,000

Expert Solution

RETAINED EARNINGS

A business earns profit ( or even losses) for a certain period of time, say a financial year. What will they do with such profits ? They have 2 options ;

Either to give them out as dividends, or
To keep it with themselves for further developmental purposes

The second option, that is ploughing back a part of its profits into to the business is done by creating a separate fund, which is referred to as Retained Earnings. It is shown on the liability side of Balance Sheet under the head ' Reserves & Surplus'.

COMPONENTS OF RETAINED EARNINGS

Profits - The profits earned and those which are to be put back into business, is the major income source of this fund.
Dividends - It is from this fund that the shareholders are paid their remuneration for risk, or more specifically dividends.

The formulae to calculate closing/ending retained earnings are :

= Begininng Retained Earnings + Profit ( in case of loss minus) - Dividends

= $ 150,000 - $ 10,000 - $ 40,000

= $ 100,000

ekkarill92 answered 2 years ago

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