Sing Tao Inc. began operations on June 2, 2014. During June, Sing Tao sold ordinary shares for HK$17,175,000, earned revenue of HK$3,030,000, incurred expenses of HK$1,545,000, and paid dividends of HK$45,000. Retained earnings at June 30, 2014
A) HK$1,440,000.
B) HK$1,485,000.
C) HK$18,615,000.
D) HK$20,206,000.

Question

Quizplus · Accepted Answer

Retained earnings are calculated as: Beginning Retained Earnings + Net Income - Dividends. Since the company began operations in June, the beginning retained earnings are HK$0. Net income is HK$3,030,000 (revenue) - HK$1,545,000 (expenses) = HK$1,485,000. After paying dividends of HK$45,000, the retained earnings are HK$1,485,000 - HK$45,000 = HK$1,440,000.