Question
In: Accounting
Hanna's business began operations on January 1, 2013, with a total investment of $100,000 by its...
Hanna's business began operations on January 1, 2013, with a
total investment of $100,000 by its
shareholders. The restaurant had a net loss its first year of
business of $15,000. During 2014 and
2015, the business was profitable with net incomes of $25,000 and
$50,000, respectively. The
company paid $5,000 per year in dividends to its shareholders in
2014 and 2015
Required:
A)Prepare a statement of retained earnings for the year ended December 31, 2014.
B)How much is total retained earnings on December 31, 2015?
C)Explain the link between the statement of retained earnings and the statement of financial position.
Solutions
Expert Solution
A. Net loss on 2013 = ( $ 15,000)
So beginning retained earnings of 2014 will be ( $ 15,000).
| STATEMENT OF RETAINED EARNINGS |
| FOR THE YEAR 2014 |
| Beginning retained earnings | ( $ 15,000) |
| Add: Net profit | $ 25,000 |
| Less: Dividend paid | ( $ 5,000) |
| Ending retained earnings | $ 5,000 |
B. Ending retained earnings for 2015.
Ending retained earnings = beginning retained earnings + net income - dividend paid.
Ending retained earnings = 5,000 + 50,000 - 5,000
Ending retained earnings = $ 50,000.
C. Statement of retained earnings is linked between statement of financial position. The main three elements of balance sheet is assets, liabilities and stockholder's equity section. On stockholder's equity section, the ending retained earnings from statement of retained earnings is added with common stock to get total value of equity section.
SUMMARY:
For the 2015, the beginning retained earnings will be the ending retained earnings of 2014. A
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