Nikonowicz Enterprises experienced the following events during 2012,its first year in operation: The business acquired $10,000 cash by issuing common stock to investors.
The business purchased land for $6,000 cash.
Services were provided to customers for $8,000 cash.
Services were provided to customers for $3,000 on account.
Operating expenses of $5,000 were incurred and paid in cash.
Operating expenses of $2,000 were incurred on account.
A dividend of $1,000 was paid to the owners of Nikonowicz Enterprises.
Based on this information,the amount of retained earnings as of December 31,2012,was
A) $1,000.
B) $3,000.
C) $5,000.
D) $11,000.

Question

Quizplus · Accepted Answer

Retained earnings are calculated as total revenues minus total expenses and dividends. Revenues are $11,000 ($8,000 cash + $3,000 on account), expenses are $7,000 ($5,000 cash + $2,000 on account), and dividends are $1,000. Thus, retained earnings = $11,000 - $7,000 - $1,000 = $3,000.

Nikonowicz Enterprises Experienced the Following Events During 2012,its First Year