Question

Using the information below, compute ending retained earnings. Write your answer in dollars. (Do not write the dollar sign.)

                                  Additional Paid-in Capital, Common    $ 9,000

                                  Accounts Payable    1,100

                                  Total Expenses                                     7,800

                                  Preferred Stock, at par                     1,750

                                  Common Stock, at par                                   400

                                  Sales                                                      10,000

                                  Treasury Stock                                        250

                                  Dividends                                                 700

                                  Retained Earnings (beginning)            1,000

                                  Additional Paid-in Capital, Preferred    50

Answer 1

Answer:

Formula to calculate Retained earnings is:

Retained Earnings (ending) = Retained Earnings (begining) + Net Income/(Loss) - Cash Dividend - Stock Divident

Particulars/Details	Amount in Dollars ($)
Reained Earnings (beginning)	1,000
Add: Net Income/(Loss) (refer below working note)	2,200
Less : Cash Dividend	(700)
Less : Stock Dividend	0
Retained Earnings (ending)	2,500

Retained Earnings: Retained earnings is the portion of business profit which is not distributed as divident but same is kept as reserved for reinvesting it into the business.

Working Note : Computation of Net Income/(Loss)

Net Income /(Loss) = Sales - Total Expesnes

Net Income /(Loss) = $10,000 - $7,800

Net Income /(Loss) = $2,200

Since the Dividend is shown in the question for $700, so same needs to be deducted from the retained earnings after addition of Net Proft/ (Loss) in the begining reatined earnings.