On September 1, Baxter Inc. reported Retained Earnings of $136,000. During the month of September, Baxter generated revenues of $20,000, incurred expenses of $12,000, purchased equipment for $5,000 and paid dividends of $6,000.
What is the balance in Retained Earnings on September 30?
A) $136,000
B) $ 8,000
C) $137,000
D) $138,000

Question

Quizplus · Accepted Answer

The balance in Retained Earnings on September 30 is calculated by starting with the initial Retained Earnings, adding net income (revenues minus expenses), and subtracting dividends. Initial Retained Earnings = $136,000, Net Income = $20,000 - $12,000 = $8,000, Dividends = $6,000. Therefore, the new Retained Earnings balance = $136,000 + $8,000 - $6,000 = $138,000. Purchasing equipment does not affect Retained Earnings directly; it impacts assets and possibly liabilities or other equity accounts, depending on how the purchase was financed.