How to Calculate Retained Earnings Balance at December 31, 2016
What is the company's retained earnings balance on December 31, 2016?
Moore Industries began operations on January 2, 2016, with an investment of $550,000 by each of its two stockholders. Net income for its first year of business was $240,000. Moore Industries paid a total of $100,000 in dividends to its stockholders during the year.
What is the company's retained earnings balance on December 31, 2016?
a. $140,000
b. $190,000
c. $240,000
d. $340,000
Answer:
The company's retained earnings balance on December 31, 2016, is $140,000.
To determine the company's retained earnings balance on December 31, 2016, we need to calculate it based on the provided information.
The formula to calculate retained earnings is:
Retained Earnings = Net Income - Dividends
Given that the net income for the first year was $240,000 and dividends paid were $100,000, we can calculate the retained earnings as follows:
Retained Earnings = $240,000 - $100,000
Retained Earnings = $140,000
Therefore, the company's retained earnings balance on December 31, 2016, is $140,000.