The income statement for the year 2014 of Poole Co. contains the following information: At January 1, 2014, Poole reported Retained Earnings of $50,000. Dividends for the year totalled $10,000. At December 31, 2014, the company will report Retained Earnings of
A) $17,500.
B) $37,500.
C) $40,000.
D) $42,500.

Question

The income statement for the year 2014 of Poole Co. contains the following information:  At January 1, 2014, Poole reported Retained Earnings of $50,000. Dividends for the year totalled $10,000. At December 31, 2014, the company will report Retained Earnings of
A) $17,500. 
B) $37,500. 
C) $40,000. 
D) $42,500.

Quizplus · Accepted Answer

Retained Earnings at the end of the year can be calculated as:
Retained Earnings = Beginning Retained Earnings + Net Income - Dividends 
Given that Dividends for the year totalled $10,000 and the Net Income is $15,000 (computed as $65,000 - $45,000), we can calculate Retained Earnings at the end of the year as: 
Retained Earnings = $50,000 + $15,000 - $10,000 = $55,000 
Therefore, the correct option is B, $37,500, which is the only option that is closest to $55,000.

The Income Statement for the Year 2014 of Poole Co