The Retained Earnings account had a beginning balance of $60,000 and an ending balance of $70,000. If $20,000 of dividends were declared and paid during the period, net income must have been:
A) $20,000.
B) $30,000.
C) $10,000.
D) $50,000.

Question

Quizplus · Accepted Answer

The formula to calculate ending Retained Earnings is:

Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings

We know that:

Beginning Retained Earnings = $60,000
Ending Retained Earnings = $70,000
Dividends = $20,000

Therefore, we can rearrange the formula to solve for Net Income:

Net Income = Ending Retained Earnings - Beginning Retained Earnings + Dividends
Net Income = $70,000 - $60,000 + $20,000
Net Income = $30,000

Therefore, the net income for the period was $30,000.

The Retained Earnings Account Had a Beginning Balance of $60,000