Beta Company was founded in 2013. Its yearly earnings and dividend payments are shown here: 2013: Profit of $4 000, paid zero dividends 2014: Profit of $20 000, paid $10 000 dividends
2015: Profit of $8 000, paid $5 000 dividends 2016: Loss of $22 000, paid zero dividends
At the end of 2016, what would be the balance in Retained earnings?

Question

Quizplus · Accepted Answer

Retained earnings are calculated as the cumulative profits minus dividends. From 2013 to 2016, the cumulative profit is $10,000 ($4,000 + $20,000 + $8,000 - $22,000) and the total dividends paid are $15,000 ($10,000 + $5,000). Thus, the retained earnings balance is $10,000 - $15,000 = -$5,000.

Beta Company Was Founded in 2013